UNIVERSITY  OF 

AT   LOS  ANGELES 


/ 


THE 


INSTRUMENT   OF  ASSOCIATION  I 


MANUAL    OF    CTJEEENOY. 


BY 

GEORGE  A.   POTTER. 


Political  economy,  at  least,  is  found  to  have  sound  principles,  founded  in  the  moral 
and  physical  nature  of  man,  which,  however  lost  sight  of  in  particular  measures,— 
however  even  temporarily  controverted  and  borne  down  by  clamor,  —  have  yet  a 
stronger  and  stronger  testimony  borne  to  them  in  each  succeeding  generation,  by  which 
they  must,  sooner  or  later,  prevail.  —  Hekschel. 

In  all  countries,  however,  men  seem  at  last  to  have  been  determined  by  irresistible 
reasons  to  give  the  preference,  for  this  employment,  to  metals  above  every  other  com- 
modity. —  Origin  and  Use  of  Monet/.  —  Adam  Smith. 


NEW   YORK: 

PUBLISHED  BY  HURD  AND  HOUGHTON. 

ffiambrtDge:  Hfbersf&e  33ress. 

1868. 


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10  v      > 

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Entered  according  to  Act  of  Congress,  in  the  year  1868,  by 

George  A.  Potter, 

in  the  Clerk's  Office  of  the  District  Court  for  the  Southern  District  of  New 

York. 


>    «        *    t     t 


Lt         lllltlilt 


- 

•35- 


CONTENTS. 


INTRODUCTION V 

I.   ITS     NATURE    AND    USE    IN   THE    ECONOMY    OF 

SOCIETY 15 

II.    OF   ITS   COMPONENT   PARTS       ....  29 

III.  THE      PRINCIPLES       OF       POLITICAL       ECONOMY 

WHICH   LIMIT   ITS   VALUE  .  *        .  .  .45 

IV.  ON   ITS    ADJUSTMENT 62 

V.    THE   EFFECT    OF   THE   ADJUSTMENT     ...         82 

VI.   A    PERFECT   INSTRUMENT  ....  95 

VII.    THE       INSTRUMENT      AS      AFFECTED      BY      THE 

PRODUCT   OF    PRECIOUS    METALS      .  .  .112 


383103 


INTRODUCTION. 


The  author  of  this  book  has  been  impelled,  by 
a  sense  of  the  deplorable  and  almost  universal 
ignorance  of  the  true  theory  of  money,  which 
prevails  among-  all  classes  of  the  community,  — 
in  Congress,  in  the  Treasury  Department  of  the 
government,  in  the  various  Chambers  of  Com- 
merce throughout  the  country,  and  among  the 
members  of  the  press,  —  to  demonstrate  as  briefly 
as  possible,  not  his  own  opinion  upon  the  subject, 
but  the  Law,  as  laid  down  by  the  most  eminent 
writers  on  political  economy,  and  as  confirmed 
again  and  again  by  the  history  of  modern  na- 
tions. The  consequences  of  this  ignorance  to 
our  own  country  have  been  most  ruinous,  im- 
measurably evil,  and  well-nigh  irremediable. 
The  fiscal  administration  of  the  government 
since  the  close  of  the  war,  has  been  character- 
ized by  the  most  fatal  ignorance  and  disregard 
of  the  laws  of  political  economy,  while  the  peo- 
ple are    being  rapidly  impoverished,  and  sunk 


VI  INTRODUCTION. 

deeper  and  deeper  (government  and  people 
alike)  into  the  bottomless  abyss  of  bankruptcy. 
And  yet,  while  many  are  sensible  of  this  disas- 
trous tendency,  both  the  legislative  and  executive 
departments  of  the  government  seem  to  be 
utterly  imbecile,  and  wholly  incapable  of  agree- 
ing upon  any  salutary  measure  of  reform.  In- 
deed, the  whole  cause  of  this  unfortunate  condi- 
tion of  affairs,  seems  to  be  entirely  obscured  from 
the  vision  of  those  whose  high  duty  it  is  to  pro- 
vide for  the  general  welfare  of  the  country.  The 
press,  in  the  mean  time,  teems  with  chimeras  of 
every  conceivable  shape,  and  pamphlets  are  mul- 
tiplied upon  pamphlets,  till  universal  bewilderment 
seems  to  have  settled,  like  a  dense  fog,  upon  and 
around  the  whole  subject.  The  country  is  in  a 
position  similar  to  that  at  the  close  of  the  Revo- 
lution, and  on  the  whole,  perhaps,  a  worse  con- 
dition than  then.  Since  then,  it  has  never  been 
in  a  situation  approaching  that  in  which  it  now 
is.  The  evils  of  paper  money  —  a  revolutionary 
currency — are  upon  us,  and  the  common  fate  of 
nations  under  the  devastating  influences  of  such 
a  currency  can  only  be  averted  by  a  careful  con- 
sideration and  observance  of  the  laws  of  political 
economy.  It  has  been  the  aim  of  the  author  to 
elucidate,  as  clearly  as  possible,  the  laws  which 


INTRODUCTION.  vii 

regulate  the  value  of  money,  and  to  show  how 
these  natural,  immutable  laws  have  been  violated  ; 
and  also,  to  show  that  it  is  owing  to  this  auda- 
cious, reprehensible  defiance  and  violation  of  these 
eternal  laws,  that  such  overshadowing  calamities 
are  threatening  the  destruction  of  public  and 
private  credit.  The  author  has  not  attempted 
to  propound  any  new  doctrine.  There  is  no 
new  doctrine.  The  law  as  laid  down  by  Adam 
Smith  and  affirmed  by  John  Adams  nearly  a 
century  ago,  is  still  the  same,  —  yesterday,  to- 
day, and  forever.  The  law  is  substantially  this  : 
that  the  value  of  the  currency  of  a  nation  is 
limited  by  natural  law ;  that  whenever  this  limit 
is  exceeded,  whether  the  currency  be  of  coin  or 
paper,  it  becomes  depreciated ;  that  if  the  depre- 
ciated currency  be  of  coin,  the  precious  metals 
will  be  exported,  till  the  volume  of  the  currency 
is  brought  within  the  limit ;  that  if  the  depre- 
ciated currency  be  of  paper,  it  must  remain  de- 
preciated, and  if  it  be  considerably  depreciated, 
it  can  never  be  disposed  of  except  at  its  depre- 
ciated value,  —  that  is  to  say,  it  cannot  be  restored 
to  the  true  standard,  by  contraction  or  funding ; 
that  if  a  paper  currency  be  issued  ad  infinitum, 
the  whole  value  of  the  issue  can  never  exceed  the 
natural  limit.     To  state  this  law  specifically,  it 


viii  INTRODUCTION. 

will  be  sufficient  to  say,  that  if  the  natural  limit 
of  the  currency  be  $500,000,000,  and  the  nomi- 
nal paper  issues  be  $1,500,000,000,  the  paper 
dollars  are  not  worth  more  than  thirty-three  and 
one  third  cents  each.  If  the  natural  limit  be 
$500,000,000,  and  it  were  possible  to  put  $1,- 
500,000,000  coin  in  use  as  currency,  then  the 
value  of  these  dollars  would  only  be  equal  to 
one  third  the  value  of  the  dollars  that  were  in 
use  previous  to  the  increase ;  that  is  to  say,  the 
price  of  all  commodities  would  be  three  times  as 
great.  Price  and  value  are  quite  distinct  from 
each  other.  Price  is  the  power  to  command 
money.  Value  is  the  power  to  command  labor. 
The  author  has  been  enabled  to  ascertain  the 
natural  limit  of  the  currency  of  this  country, 
and  to  fix  its  true  value,  beyond  controversy. 
He  has  also  been  enabled  to  arrive  at  the  ap- 
proximate nominal  value  of  the  irredeemable 
paper  currency,  and  has  demonstrated,  incontes- 
tably,  that  the  present  value  of  our  legal  tender 
and  national  bank-notes  is  about  thirty-three 
and  one  third  cents  each  in  the  common  currency 
of  the  world.  He  has  shown  that  the  fiscal  em- 
barrassments of  the  nation,  as  well  as  the  almost 
frightful  amount  of  our  foreign  indebtedness, 
are  wholly  due  to  the  dogged  persistence  of  the 


INTRODUCTION.  IX 

Treasury  Department,  in  maintaining  the  price 
of  the  legal  tender  notes  above  seventy  cents, 
when  their  value  is  only  about  thirty-three  and 
one  third  cents  —  in  selling  gold  and  tampering 
with  the  currency.  Congress  is  obnoxious  to 
censure  in1  the  highest  degree,  for  conferring 
such  corrupt  and  corrupting  power  upon  the 
Minister  of  Finance,  though  he  be  the  most  pure 
and  incorruptible  of  men.  If  pure-minded,  he 
is  almost  as  ignorant  as  Congress,  and  has 
wielded  a  terribly  destructive  power,  without 
hindrance,  and  with  the  most  disastrous  results. 
Congress,  in  this  respect,  it  cannot  be  denied, 
has  manifested  utter  incapacity  for  good,  and 
capacity  only  for  evil.  The  Administration  is, 
perhaps,  equally  to  blame ;  for  the  Finance  Min- 
ister should,  by  virtue  of  his  office,  be  able  to 
inform  Congress  upon  the  true  principles  of 
political  economy.  But,  unfortunately,  fitness 
for  office  seems  to  work  a  disqualification  there- 
for, in  this  country.  Not  only  has  this  fatal 
policy  of  selling  gold  been  persisted  in,  but  the 
equally  fatal  dogma  of  contraction  has  been 
pursued  with  a  relentlessness  of  purpose  which 
deserves  the  execrations  of  every  citizen.  His- 
tory furnishes  no  instance  where  an  irredeem- 
able paper   currency,  —  revolutionary   currency, 


INTRODUCTION. 


or  bills  of  credit,  —  when  once  issued  to  great 
excess,  has  ever  been  considerably  appreciated  in 
value  ;  and  history  never  will  furnish  such  an 
instance,  for  the  simple  reason  that  it  is  impos- 
sible. The  very  attempt  to  do  so  necessitates 
increased  issues,  because  it  destroys  the  revenues 
of  the  government. 

The  attempt  has  been  pursued  with  greater 
obstinacy  and  to  a  greater  extent,  perhaps,  in 
this  country  than  ever  before.  The  currency 
cannot  be  contracted,  still  less  can  it  be  funded. 
The  only  method  of  disposing  of  this  currency 
is  such  as  has  been  employed  by  other  nations, 
and  which  is  pointed  out  in  the  text.  The  mal- 
administration of  the  Treasury  Department  has 
been  the  greatest  tax  upon  the  people,  but  there 
are  others  equally  unjust.  The  national  bank 
circulation  is  a  tax  upon  the  people  to  the  extent 
of  about  fifteen  millions  of  dollars  per  annum, 
and.  unfortunately,  the  system,  while  ostensibly 
under  the  control  of  Congress,  has  or  seems  to 
have  its  attorneys  in  both  legislative  branches, 
and  in  the  various  departments  of  the  Treasury. 
It  is  not  fit  that  the  people  should  be  compelled 
to  bear  this  incubus  longer.  The  dominant  party 
seems  to  be  without  the  moral  courage  to  resist 
it,  if,  indeed,  the  party  itself  be  not  within  its 


INTRODUCTION.  XI 

stern  control.  An  enormous  income  tax,  with- 
out color  of  legality  under  the  fundamental  law, 
endurable  during  the  war,  but  intolerable  now 
that  the  war  is  ended,  has  pressed  heavily  upon 
the  middling  classes,  and  in  many  cases  en- 
croached upon  their  capital.  The  excise  on 
distilled  spirits,  one  of  the  most  just  and  least 
oppressive  of  taxes,  seems  to  be  appropriated  by 
the  vultures  who  hover  about  and  pollute  all 
departments  of  the  government,  and  sit  at  the 
receipt  of  customs.  Preposterous  imposts  have 
been  levied  upon  foreign  products,  with  the  futile 
design  of  shutting  them  out  from  ruinous  com- 
petition with  home  industry ;  but  the  money 
king,  whom  Congress  has  enthroned  above  the 
law,  and  the  smuggler,  laugh  them  to  scorn. 
It  is  not  easy  to  contemplate  these  things  with 
composure,  nor  is  it  agreeable  to  dwell  upon 
the  criminal  neglect  of  the  interests  of  the 
country,  when  one's  political  sympathies  are 
drawn  towards  the  dominant  party.  But  the 
country  has  stronger  and  paramount  claims,  even 
if  each  person's  individual  interest  did  not  con- 
strain him  to  rebuke  those,  who,  intoxicated  with 
power,  apparently  care  for  little  else  than  its 
retention.  It  is  true  that  a  factious  opposition 
has  been  presented  to  the  legislative  power,  but 


Xll  INTRODUCTION. 

it  cannot  be  concealed  that  the  dominant  party 
has  retained  a  controlling1  power  of  the  machin- 
ery of  legislation,  and,  instead  of  a  well-devised 
system  of  taxation,  we  seem  to  have  an  artful 
scheme  of  spoliation.  The  author  has  discussed 
the  question  of  subjecting  the  capital  invested  in 
government  bonds  to  taxation  with  entire  free- 
dom, as  he  was  in  duty  bound  to  do.  Whoever 
has  read  history  attentively,  will  perceive  the 
danger  likely  to  arrive  from  this  exemption  of 
accumulated  property  of  any  description  from 
taxation,  and  throwing  the  burden  upon  pro- 
duction. The  history  of  the  French  Revo- 
lution is  most  instructive  in  this  particular.  It 
was  the  refusal  of  the  nobles  and  privileged 
classes  in  France  to  submit  to  taxation,  and  to 
acquiesce  in  the  wholesome  reforms  proposed  by 
Turgot,  and  afterwards  by  Necker,  which  drove 
the  latter  repeatedly  from  office,  necessitated  the 
issue  of  paper  money,  brought  on  the  Reign  of 
Terror,  and  culminated  in  the  ascendancy  of 
the  military  power.  The  frightful  sequence  of 
events  in  France  could  not  have  taken  place,  had 
the  suffrage  been  general  and  impartial,  and 
therefore,  such  calamities  are  impossible  here. 
The  danger  is  not  that  injustice  will  be  done  to 
the  tax-payers  in  this  country,  but  that  the  at- 


INTRODUCTION.  Xlll 

tempt  to  commit  a  wrong  upon  them,  either  in 
exempting  bonds  from  taxation  or  in  settling  the 
public  debt  by  a  standard  thrice  as  high  as  that 
by  which  it  was  contracted,  will  react  with  fatal 
injustice  to  the  public  creditor,  and  be  prejudicial 
in  the  last  degree  to  the  permanence  of  the 
Union.  Especially  has  it  been  the  desire  of  the 
author  to  embody  the  elementary  principles  of 
currency  in  the  smallest  possible  compass,  since 
it  is  well-nigh  impossible  to  induce  the  general 
community  to  undertake  the  careful  perusal  of 
an  elaborate  treatise  on  political  economy.  He 
has  drawn  freely  from  the  fountains  of  knowledge 
and  the  history  of  human  experience.  He  has 
commented  with  freedom  upon  the  executive  and 
legislative  departments  of  the  government,  as 
well  as  upon  the  political  party  which  is  in  the 
ascendant,  and  he  conceives  it  was  his  right  and 
duty  so  to  do.  He  has  done  this  with  none 
other  than  kind  feelings,  so  far  as  any  persons  in 
either  department  of  the  government  are  known 
to  him.  He  has  not  sought  popularity  at  the 
expense  of  truth,  but  rather  incurred  the  risk  of 
censure  for  the  sake  of  justice.  He  has  en- 
deavored to  submit  to  the  guidance  of  his  in- 
stincts, which,  he  hopes,  are  patriotic,  honest,  and 
republican.     So   far   as  he   may  have   advanced 


XIV  INTEODUCTION. 

principles  of  political  economy,  he  invites  intelli- 
gent criticism.  So  far  as  he  may  be  judged  in 
matters  of  opinion,  or  in  the  manner  of  this  book, 
he  invokes  fairness  only. 

GEO.  A.  POTTER. 

Brooklyn,  June  4,  1868. 


THE 

INSTRUMENT   OF  ASSOCIATION. 


I. 


ITS  NATURE  AND  USE  IN  THE  ECONOMY  OF 
SOCIETY. 

rnHE  credit  of  a  state  depends  on  the  propor- 
tion  of  its  revenue  to  its  expense,  and  the 
ease  and  satisfaction  with  which  the  necessary 
taxation  is  borne  by  the  people.1  The  revenue 
of  a  state  depends  entirely  upon  the  industry  of 
the  people,  for  labor  is  the  only  source  of  wealth. 
The  industry  of  the  people  consists  in  utilizing 
the  matter  already  created  by  God.  Man  pro- 
duces nothing  but  utility.2  The  industry  of  man 
takes  three  general  but  different  forms  —  trans- 
mutation, transformation,  transportation.3  Trans-  & 
mutation  is  the  appropriation  and  change  of 
matter  by  the  agriculturist,  miner,  chemist, 
hunter,  fisherman,  and  so  on.  Transforma- 
tion is  the  change  of  form  wrought  by  the  man- 
ufacturer, which  branch  of  human  industry  is 
susceptible  of  the  greatest  extension  of  the  prin- 
i  Burke.  2  McCulloch  and  Mill.  3  Walker. 


16  THE   INSTRUMENT   OF   ASSOCIATION: 

ciple  of  the  division  of  labor.1  The  greater  the 
extent  of  the  division  of  labor,  the  greater  its 
efficiency  in  the  aggregate ;  hence,  manufactur- 
ing industry  is  the  most  profitable  for  any  na- 
tion, so  long  as  it  can  obtain  a  market  for  its 
products  at  home  or  abroad.  Transportation 
is  the  change  of  place  wrought  by  the  merchant, 
the  seaman,  and  the  carrying  and  distributing 
trade  generally ;  in  a  word,  it  is  commerce. 
This  branch  of  industry  is  also  susceptible,  in 
a  great  degree,  of  the  application  of  the  princi- 
ple of  the  division  of  labor,  and  includes  bankers, 
brokers,  and  dealers  in  money  generally,  so  far 
as  they  help  to  utilize  capital.  These  are  the  pro- 
ducing classes,  and  so  far  as  the  value  of  their 
production  exceeds  the  value  of  their  consump- 
tion, so  far  have  they  increased  the  fixed  or  cir- 
culating capital  of  the  country.  The  prosperity 
of  each  class  is  intimately  associated  with,  and 
dependent  on,  the  prosperitv  of  the  other  two. 
If  from  any  cause  the  prosperity  of  manufac- 
turing industry  declines,  agriculture  and  com- 
merce will  also  decline.2  The  one  grand  con- 
necting link  between  these  three  general  branches 
of  industry,  in  all  their  multifarious  subdivisions, 

1  Progress  of  the  Mechanical  Arts.    A  Lecture  before  the 
Boston  Mechanics'  Institution.    1828.    Webster. 

2  Webster. 


ITS   NATURE   AND   USE   IN   SOCIETY.  17 

—  the  one  instrument  of  association? — is  money 
and  its  substitutes,  comprehended  in  the  general 
term  —  currency. 

It  is  obvious  that  the  material  welfare  of  a 
state  depends  upon  the  perfect  adaptability  of  the 
instrument  of  association.  And  in  order  to  be 
perfectly  adapted  to  its  functions,  it  must  pro- 
mote a  rapid  societary  circulation?  By  a  rapid 
societary  circulation,  is  meant  rapid  production, 
and  interchange,  and  consumption,  of  the  prod- 
ucts of  labor.  The  more  rapid  the  circulation, 
the  more  perfect  the  power  of  association,  the 
greater  the  power  to  support  taxation,  the  greater 
the  economy  of  labor,  the  more  advanced  the 
civilization  of  the  community,  the  greater  the 
extent  of  the  division  of  labor,  and  the  more 
secure  the  democratic  form  of  government  and 
the  liberty  of  the  people.3  The  instrument  of 
association  then  must  not  be  unwieldy,  other- 
wise the  circulation  will  be  sluggish  ;  if  the  cur- 
rency is  excessive,  it  begins  to  lose  the  character 
of  a  medium  and  becomes  itself  the  thing  to  be 

1  I  am  indebted  to  Mr.  Carey  for  this  term.  No  other  lan- 
guage so  completely  embodies  the  idea  developed  in  this  book 
as  to  the  functions  of  the  currency.  Hence  the  appropriate- 
ness of  the  title. 

2  Carey. 

3  De  Tocqueville.  "  Industry  is  essentially  social."  —  Ev- 
erett. 


18  THE   INSTRUMENT   OP   ASSOCIATION  : 

circulated.  It  must  be  elastic,  otherwise  values 
and  prices  will  be  constantly  fluctuating ;  pro- 
ducers will  stop  producing  and  begin  speculat- 
ing, and  the  demoralization  and  poverty  of  the 
people  will  ensue.  It  must  possess  the  element  of 
value  in  itself,  or  by  proxy,  in  order  to  command 
value  at  all  times.  It  must  be  as  inexpensive 
as  possible,  otherwise  it  will  be  a  burden  on  the 
people.  Finally,  it  must  be  self-regulating  and 
secured  against  the  interference  of  empirics, 
whether  in  the  executive  or  legislative  depart- 
ments of  the  government.1  In  order  to  illus- 
trate, by  analogy,  the  economy  of  a  rapid  circu- 
lation, let  us  suppose  a  given  quantity  of  freight 
to  be  transported  from  one  point  to  another. 
This  freight,  we  will  suppose,  can  be  transported 
by  one  hundred  cars  making  one  trip  per  day, 
or  it  can  be  transported  by  ten  cars  making  ten 
trips  per  day.  Now  it  is  obvious  that  when  the 
ten  cars  only  are  employed  as  the  instrument  of 
commerce,  the  more  rapid  will  be  the  circulation, 
and  the  less  expensive  in  point  of  cost  will  be 
that  instrument  of  commerce.  Let  us  also  sup- 
pose that  the  use  of  a  thousand  cars  every  day 
to    transport   this   freight  is   made   compulsory ; 

1   "  He  who  tampers  with  the  currency,  robs  labor  of  its 
bread." —  Webster. 


ITS   N  A  TUBE   AND   USE   IN   SOCIETY.  19 

then,  obviously,  the  instrument  of  commerce  -is 
not  only  very  expensive,  but  each  car  will  only 
be  a  tenth  part  loaded.  In  these  supposed  cases 
the  utility  of  the  ten  cars,  and  the  hundred  cars, 
and  the  thousand  cars  is  the  same.  Their  re- 
spective values  as  instruments  of  commerce  are 
equal.  So  it  is  with  the  currency  of  a  nation ; 
the  momentum  *  (mass  multiplied  by  velocity), 
or  utility,  being1  the  same  when  the  volume  of 
the  currency  is  small  and  the  circulation  rapid, 
as  when  the  volume  is  large  and  the  circulation 
sluggish.2  Hence,  the  smaller  the  volume  of 
the  currency  of  a  nation,  the  more  rapid  the  cir- 
culation, and  the  greater  the  material  prosperity 
of  such  nation.3  The  minimum  as  well  as  the 
maximum  of  the  volume  of  the  currency  of  a 
nation,  however,  is  fixed  by  a  principle  which 
will  be  laid  down  hereafter.  The  elasticity  of 
the  currency  of  a  nation  depends  upon  its  mate- 
rial, and  whether  there  be  any  use  for  such  ma- 
terial within  or  without  such  nation,  other  than 
for  currency.  If  the  currency  be  of  irredeem- 
able paper,  it  will  have  no  elasticity,  because  its 

1  Bowen  and  Perry.  2  Mill. 

3  Mr.  Carey  contradicts  this  proposition,  but  Smith,  Hume, 
and  nearly  all  the  British  economists,  as  well  as  Say,  Bastiat, 
and  Chevalier,  sustain  it.  Bowen,  Walker,  and  Perry  also 
substantially  admit  it. 


20  THE   INSTRUMENT   OF   ASSOCIATION: 

volume  remaining"  the  same,  the  constant  ebbing 
and  flowing  of  the  tide  of  commerce  will  fall  as 
upon   the   sea-shore,  marking  a  depreciation,  or 
it  will  rise  as  upon  the  sea-shore,  marking  an 
appreciation  of  the   currency.     If  the  currency 
be  of  inherent  or  representative  value,  it  will  go 
abroad  or  be   consumed  when  in  excess ;   when 
deficient,  it  will  be  increased  by  accretions  from 
abroad,  or  by  production.     The  ceaseless  opera- 
tion of  the   eternal  law  of  supply  and  demand, 
which    acts    on    everything    of    value,    whether 
movable  or  immovable,  will  cause  a  currency  of 
value   to  remain,  or  go  where   it  will   command 
the  greajtest  value  of  other  commodities  in  ex- 
change.    It  is  rather  a  truism  than  a  similitude 
to  say  that  the  laws  of  trade  will  preserve  a  per- 
fect  adjustment  of  a  currency  of  value,  just  as 
the  law  of  gravitation  preserves  a  perfect  level 
of  the  sea.     In   saying  that  the   currency  must 
possess  the  element  of  value  in  itself,  it  is  in- 
tended to  use  the  word  value  in  the  sense  given 
to  it  by  Bastiat ;  that  is  to  say,  it  must  be  the 
embodiment  of  human  service  or  labor  already 
performed,  or  rather  it  must  embody  the  power 
to  command  service  or  labor.    It  doubtless  seems 
paradoxical  to  assert  that  a  metallic  currency  is 
comparatively   inexpensive,  but   experience   has 


ITS   NATURE   AND   USE   IN    SOCIETY.  21 

proved  it  to  be  the  cheapest  currency  that  human 
ingenuity  can  devise.  Its  utmost  cost  is  the  loss 
of  interest,  and  the  insignificant  loss  by  abra- 
sion. It  is  the  cheapest  because  it  is  the  most 
efficient ; 1  but  if  we  consider  the  immense  loss 
resulting1  to  private  individuals  and  corpora- 
tions, and  to  the  industrial  classes  and  capital- 
ists, from  the  frequent  expansions  and  revul- 
sions of  a  paper  currency,  the  absurdity  of  the 
pretense  that  such  a  currency  is  cheap,  will 
be  readily  perceived.  The  Secretary  of  the 
Treasury,  in  184*1,  in  answer  to  a  request  of 
Congress,  estimated  that  up  to  that  time  the 
losses  sustained  by  the  government  and  the  peo- 
ple by  allowing  banks  of  issue,  was  $380,943,- 

497-2  ~ 

Having  described  the  essentials  of  a  perfect 
currency  or  instrument  of  association,  it  only  re- 
mains to  say  that  of  all  materials  known  to 
civilized  man,  the  precious  metals  alone  possess 
all  the  indispensable  qualities  of  a  perfect  cur- 
rency. It  is  the  opinion  of  many  able  writers, 
that  the  precious  metals  were  designed  by  the 
Creator  to  be  the  instrument  of  association.  It 
is  no  figure  of  speech  to  say  (and  I  speak  it 
with  the  utmost  reverence),  in  the  language  of  a 
i  Walker.  2  ibid. 


22  THE   INSTRUMENT   OF   ASSOCIATION: 

stump-orator,  that  gold  and  silver  is  the  money 
of  God  and  of  democracy.1  The  pernicious 
doctrine  of  Adam  Smith,  that  paper  could  be 
advantageously  substituted  for  a  metallic  circula- 
tion, thus  displacing  the  coin  with  an  instrument 
less  costly,  has  been  abundantly  refuted  by  expe- 
rience, and  it  may  well  be  doubted  whether  he 
would  not  be  an  implacable  enemy  of  paper 
money  in  any  form,  were  he  now  living.  It 
should  be  borne  in  mind  that  when  Smith  wrote, 
the  science  of  political  economy  was  in  its  in- 
fancy ;  indeed,  he  has  been  regarded  as  its  fa- 
ther ;  moreover,  political  economy  is  an  experi- 
mental science ;  it  assumes  nothing  but  the 
universality  of  human  selfishness,  which  is  a 
law  of  human  nature.2  But  if  history  has 
proved  anything,  it  has  proved  that  a  paper 
currency  intended  to  be  convertible  at  all  times, 
under  any  circumstances,  into  gold  at  the  will 
of  the  holder,  is  a  chimera,  and  nowhere  more 
so,  than  under  a  popular  government.  Political 
economy,  therefore,  being  an  experimental  sci- 
ence, it  must  be  conceded  that  on  the  facts  as 
they  are  in  history,  a  paper  currency  cannot 
stand  the  test  to  which  that  science  subjects 
all  theories,  before  admitting  them  to  be  sound. 
1  Speech  of  S.  S.  Cox.  2  Bowen. 


ITS   NATURE    AND   USE   IN   SOCIETY.  23 

Adam    Smith,    however,    entertained    a    whole- 
some  contempt   for   circulating    notes    of   small 
denomination,  for  he  says,  "  Where  the  issuing 
of    bank-notes  for  such   very  small  sums  is  al- 
lowed,   and    commonly    practiced,    many    mean 
people  are  both  enabled  and  encouraged  to  be- 
come    bankers.       A    person   whose    promissory 
note  for  five  pounds,  or  even  twenty  shillings, 
would  be  rejected  by  everybody,  will  get  it  to  be 
received  without  scruple  when  it  is  issued  for  so 
small  a  sum  as  a  sixpence.     But  the  frequent 
bankruptcies    to   which   such  beggarly    bankers 
must  be  liable,  may  occasion  a  very  considerable 
inconveniency,  and  sometimes  a   very  great  ca- 
lamity to  many  poor  people  who  had  received 
their  notes  in  payment.      It  were  better,  perhaps, 
that  no  bank-notes  were  issued  in  any  part  of 
the  kingdom  for  a  smaller  sum  than  five  pounds." 
Speaking  of   the    lawfulness  of    restricting  the 
issue   of   circulating    notes,  Dr.    Smith  further 
says  :    "  Such  regulations  may  no  doubt  be  con- 
sidered as  in  some  respects  a  violation  of  natural 
liberty.       But    those    exertions    of   the    natural 
liberty  of  a  few  individuals,  which    might    en- 
danger the  whole  society,  are,  and  ought  to  be, 
restrained  by  the  laws  of  all  governments  ;  of  the 
most  free,  as  well  as  the  most  despotical.     The 


24  THE  INSTEUMENT   OF   ASSOCIATION: 

obligation  of  building  party  walls,  in  order  to 
prevent  the  communication  of  fire,  is  a  violation 
of  natural  liberty,  exactly  of  the  same  kind  with 
the  regulations  of  the  banking  trade  which  are 
here  proposed."  The  arguments  of  those  who 
advocate  paper  money,  do  not  differ  widely  from 
those  of  John  Law,  who  held  "  that  money  owes 
its  value  to  the  public  confidence  ;  and  that  pa- 
per, or  anything  else,  may  answer  this  purpose 
as  well  as  the  precious  metals  (the  first,  as  well 
as  the  last,  he  regarded  as  the  mere  signs  of 
wealth) ;  that  land  was  a  better  commodity  for 
money  than  silver,  and  that  the  currency  of  a 
country  might  be  increased  to  the  whole  value 
of  its  lands ;  that  the  effect  of  such  an  increase 
would  be  not  depreciation,  but  merely  a  lower- 
ing of  interest,  by  which  trade  would  be 
encouraged  and  wealth  augmented."  *  Notwith- 
standing that  such  a  fallacious  doctrine  has  been 
again  and  again  exploded,  it  seems  to  find  new 
advocates  in  every  generation.  These  advocates 
do  not,  perhaps,  claim  that  land  is  a  suitable 
basis  for  a  circulation,  but  they  do  claim  that 
interest  bearing  bonds  are  a  safe  basis  for  circu- 
lation, which  is  equally  a  heresy.  Government 
bonds  are  not  money,  and  as  a  basis  of  circula- 

1  The  Mississippi  Scheme  in  France.  —  Tucker. 


ITS   NATURE   AND   USE   IN   SOCIETY.  25 

tion,    "  the    mischief    is,    that    they    are    least 
available  when  they  are  most  wanted ;  the  very- 
causes    which    might    prevent    the    hanks    from 
redeeming  their  issues  promptly,  would  cause  a 
fall  in  the  value  of  the  stocks  and  mortgages  on 
the  ultimate  security  of  which   their  notes  have 
been  issued."  1     A  circulation  based  on  govern- 
ment bonds  is  a  circulation  based  on  debt,  and 
not  on  value,  than  which,  nothing  can  be  con- 
ceived more  unsubstantial.     A  circulation  based 
on   staple  merchandise  of    general  consumption 
throughout  the  world,  and  imperishable  in  its  own 
nature,  such  as  cotton,  valued  at  about  the  cost 
of  production  in  the  chief  producing  country,  and 
rendered  secure  against  damage  by  fire  and  wa- 
ter, would  be  a  comparatively  sound  currency, 
but   much    more    expensive    than    a    circulation 
based  on  gold.      With  such  a  currency,  the  ele- 
ment of  value  would  be  ever  present ;  but  it  is 
precisely  this  evasion  of  value  and  the  substitu- 
tion of  debt  in  its  place,  which  is  always  sought; 
this  foisting   upon   the    people    as    money    that 
which,  when  put  to  the  crucial  test,  has  always 
been  found  to  be  its  counterfeit  and  not  its  rep- 
resentative, which  is  always  persisted  in ;  it  is 
this  insufferable  fraud  on  the  people,  originally 
1  Gouge,  quoted  by  Bowen. 


26  THE   INSTRUMENT   OP   ASSOCIATION  : 

granted  as  a  privilege,  but  now  claimed  as  a 
right,  which  has  been  the  abundant  cause  of  so 
much  loss  and  distress  in  the  mercantile  com- 
munity, so  much  discord  between  capital  and  la- 
bor, such  acrimonious  strife  between  free-traders 
and  protectionists,  and  the  remote  cause  of  civil 
war  in  the  country.  If  the  instrument  of  asso- 
ciation be  imperfect,  the  power  of  association 
becomes  weakened,  and  the  danger  of  dissocia- 
tion is  always  impending.  Men  are  too  apt  to 
regard  this  Union  as  the  result  of  extraordi- 
nary abnegation  on  the  part  of  our  fathers,  with 
a  view  to  demonstrate,  in  the  uncontaminated 
society  of  a  new  world,  a  liberal  principle  of  po- 
litical philosophy  which  had  hitherto  failed  else- 
where. That  the  framers  of  the  Constitution, 
especially  Washington  who  presided  at  the  con- 
vention, were  animated  by  such  lofty  sentiments, 
is  not  doubted ;  but  that  the  States  and  people 
at  large  participated  in,  and  were  influenced  by 
patriotic  considerations  to  any  important  degree, 
neither  history  nor  a  knowledge  of  the  springs 
of  human  action  will  permit  us  to  believe.  The 
recorded  failure  of  the  Confederation  to  promote 
the  general  prosperity,  was  regarded  as  a  proof 
of  what  the  exigencies  of  the  Union  demanded 
in  a  general  government.1 

1  History  of  the  Constitution,  Curtis. 


ITS   NATURE   AND   USE   IN   SOCIETY.  27 

That  the  evils  of  paper  money  were  generally 
considered  to  be  the  parent  of  the  commercial 
distress,  is  perfectly  clear.  "  One  of  the  prin- 
cipal causes  which  led  to  the  experiment  of 
making-  a  national  government  with  power  to 
prevent  such  abuses,  had  been  the  frauds  and  in- 
justice perpetrated  by  the  States,  in  their  issues 
of  paper  money  ;  and  there  was  at  this  very  time 
a  loud  and  general  outcry  against  the  conduct  of 
the  people  of  Rhode  Island,  who  had  kept  them- 
selves aloof  from  the  national  convention,  for 
the  express  purpose,  among  others,  of  retaining 
to  themselves  the  power  to  issue  such  a  cur- 
rency." *  But  the  exigencies  of  the  Union 
demanded  that  no  State  should  "  make  anything 
but  gold  and  silver  coin  a  tender  in  payment 
of  debts,"  2  and  so  the  prohibition  was  incorpo- 
rated into  the  fundamental  law.3  "  Whatever  we 
may  think  of  it  now,  the  Constitution  had  its  im- 
mediate origin  in  the  conviction  of  the  necessity 
for  this  uniformity  or  identity  in  commercial 
regulations.  The  whole  history  of  the  country, 
of  every  year  and  every  month,  from  the  close 
of  the  war  of  the  Revolution  to  17§9,  proves 
this.    Over  whatever  other  interests  it  was  made 

1  History  of  the  Constitution,  Curtis.  2  Ibid. 

3  Constitution,  art.  1,  sec.  10. 


28  THE   INSTRUMENT   OP   ASSOCIATION: 

to  extend,  and  whatever  other  biessings  it  now 
confers,  or  hereafter  may  confer,  on  the  millions 
of  free  citizens  who  do  or  shall  live  under  its 
protection  ;  even  though  in  time  to  come,  it  shall 
raise  a  pyramid  of  power  and  grandeur,  whose 
apex  should  look  down  on  the  loftiest  political 
structures  of  other  nations  and  other  ages,  it  will 
yet  be  true,  that  it  was  itself  the  child  of  press- 
ing commercial  necessity."1  It  is  readily  con- 
ceded that  slavery  was  the  immediate  cause  of 
the  late  civil  war,  but  slavery  grew  and  flourished 
under  a  condition  of  society  that  was  wholly  due 
to  the  inefficacy  of  the  instrument  of  association. 
This  will  be  shown  hereafter.2 

1  Webster.  2  Post,  pp.  101-104. 


ITS   COMPONENT    PARTS.  29 


n. 

OF  ITS  COMPONENT  PARTS. 

^T^HE  circulating  medium  of  a  country,  whether 
of  notes  or  coin,  is  commonly  supposed  to 
form  the  entire  currency  thereof,  whereas,  only 
a  very  small  portion  of  the  commercial  exchanges 
is  effected  by  circulating  notes  or  coin.  The 
greater  portion  of  our  commercial  exchanges  are 
effected  by  bank  deposits,  represented  and  trans- 
ferred by  means  of  checks.  The  magnitude  of 
the  exchanges  effected  at  the  clearing  house  in 
New  York,  without  the  intervention  of  circulat- 
ing notes,  is  very  great.  The  larger  proportion 
of  customs  duties  are  paid  by  coin  certificates  of 
deposit,  and  before  the  use  of  these,  certified  gold 
checks  were  the  common  means  of  effecting  ex- 
changes in  a  gold  currency.  The  mercantile 
classes  seldom  use  circulating  notes  in  payments 
of  one  hundred  dollars  or  more.  In  the  seven- 
teenth century,  the  commercial  currency  of  some 
of  the  smaller  European  states  consisted  entirely 
of  deposits.1  The  banks  of  Venice,  Genoa,  Amster- 

1  Smith. 


30  THE   INSTRUMENT    OF    ASSOCIATION  : 

dam,  Hamburg,  and  Nuremburg,  held  deposits 
of  bullion,  which  was  considered  the  standard 
money,  and  was  transferred  by  means  of  receipts 
which  were  in  the  nature  of  certificates  of  de- 
posit. This  practice  arose  in  consequence  of  the 
coin  of  those  states  having  become  degraded  by 
clipping,  and  by  the  admixture  of  foreign  coin 
in  the  circulation,  so  that  bank  money  com- 
monly bore  an  agio  ;  that  of  the  Bank  of  Ham- 
burg was  about  fourteen  per  cent,  above  the 
degraded  coin.  For  the  purpose  of  conveniently 
elucidating  this  subject,  I  propose  to  draw  a  dis- 
tinction between  the  retail  or  trading  currency, 
and  the  wholesale  or  commercial  currency, — a 
distinction  between  trade  and  commerce  without 
a  lexical  difference  perhaps,  and  arbitrary  withal, 
but  yet  essential  to  a  clear  presentation  of  the 
subject.  Some  writers  consider  that  bills  of 
exchange  form  a  part  of  the  currency,  but  the 
proposition  cannot  be  admitted.  Suppose  A  in 
Chicago,  by  means  of  his  own  check,  purchases 
of  the  bank  a  bill  of  exchange  on  New  York. 
What  is  the  result  ?  A  has  reduced  his  deposit 
account,  the  bank  has  reduced  its  liability  to  A, 
and  the  bank  in  New  York  has  reduced  it  lia- 
bility to  the  bank  in  Chicago  by  reducing  its 
balance,  out  of  which  the  bill  of  exchange  has 


ITS   COMPONENT   PARTS.  31 

been  paid  and  passed  out  of  existence ;  and  the 
party  in  New  York,  from  whom  the  bill  of  ex- 
change was  redeemed,  has  increased  his  deposit 
account.     The  bill  of  exchange,  in  this  instance, 
was  merely  the  agency  by  which  a  deposit  was 
transferred  from  A  in  Chicago  to  the  payee  in 
New  York.     No  additional  deposit  was  created ; 
the  aggregate  deposits  in  the  country  remained 
the  same.     Suppose  A,  instead  of    giving  his 
check  for  the  .bill  of  exchange  in  Chicago,  had 
handed  bank-notes.       Without    stopping    to  in- 
quire where   A    procured   the  notes,  it   will  be 
sufficient  to  say  that  the  active  circulation  of  the 
country  was,  for  the  moment,  reduced  so  much, 
and  the  deposits  in  New  York  were  increased 
so  much,  if  the  proceeds  of  the  bill  of  exchange 
had  been  credited  to  the  deposit  account  of  the 
payee,  as  we  have  supposed  was  the  case.     If 
the  payee  received   bank-notes  in  payment,  then 
the  active  circulation  was  increased  at  New  York 
and  decreased  at  Chicago,  the  circulation  in  the 
aggregate  remaining  the  same.     The  aggregate 
circulation  and  deposits  of  the  country  were  not 
changed  in  either  case ;  only  the  bank  balances 
were  reduced.     If,  however,  the  bill  of  exchange 
was  drawn  on  time,  and  the  payee  had  merely 
procured  acceptance  thereof,  and  locked  it  in  his 


32  THE   INSTRUMENT   OP   ASSOCIATION  : 

safe,   then    the   circulation   and   deposits   having 
been  decreased  in    Chicago,   without  being  in- 
creased in   New  York,  the  net  result  is  a  dimi- 
nution of  the  aggregate  circulation  and  deposits 
in  the  country.     The  character  of  the  transaction 
effected  by  the  bill  of  exchange,  is  the  transfer 
of  currency  by  proxy,  as  it  were,  which  is  in 
essence  the  same    as    a  telegraphic    or  manual 
transfer.       Clearly   then,   bills   of  exchange  are 
not  currency.     Fictitious  exchange  may  be  cre- 
ated thus.     If  A  in  Chicago  wishes  to  obtain 
money,  he  draws  on  B  in  New  York  at  thirty 
days  and  sells  the  bill  in  Chicago,  which  B  in 
New  York  accepts  ;  at,  or  near  maturity,  A  will 
draw  on  C  in  New  York  for  the  same  amount 
plus  interest,  and   send  the  bill  to  B,  which  B 
will  have  accepted  and  discounted,  and  with  the 
proceeds  will  meet  the  first  bill,  and  so  on.     In 
this  case,  no  addition  to   the  currency  is  made 
until   B   gets   the  second   bill  drawn  on  C  dis- 
counted at  a  bank,  thus  creating  a  deposit,  against 
which  he  draws  his  check  to   meet  the  first  bill. 
Then  the  addition  to  the  currency  is   made  by 
creating  a  deposit  in  the  bank,  and  the  bank  will 
add  to  its  resources  by  loans  and  discounts,  and 
increase  its  liabilities  by  deposits,  and  the  cur- 
rency of  the  country  (circulation  and  deposits) 


ITS   COMPONENT   PARTS.  33 

becomes  increased.     But  the  bill  of    exchange, 
by  itself,  is  not  currency  any  more  than  a  prom- 
issory  note,   or  government  bonds,  or  anything 
else    upon    which    the    bank   may  have   loaned. 
This  practice  of  drawing  and  redrawing  is  justly 
condemned  by  Adam    Smith,  and   is   similar  to 
what  is  technically  known  in  finance  as  making 
paper.     If,  however,  A  was  possessed  of  mer- 
chandise   not    already   hypothecated,    and    equal 
in  value  to  the  amount  of  the  bill  of  exchange, 
the   transaction    was    legitimate.     Nor   are   for- 
eign bills  of  exchange  currency,  in  any  sense. 
Foreign  exchange  is  drawn  against  commodities 
in    transit,  and  is  the  same   in   effect   as   if  A 
telegraphed    to    B,   to   pay   C    in  London,   and 
charge  to  consignment  of  cotton,  per  "  Friend- 
ship," bill  of  lading  and   invoice   per   mail.     In 
case  the  exchange   is  drawn  against  bullion  or 
coin,  it  is  the  same  thing.       Bullion  is   a  com- 
modity, and  so  is   coin  which  loses  the  form  of 
currency,  and  becomes  a  commodity  only,  when 
it  leaves  its  native  shores.     I  have  dwelt  on  this 
subject  because  it  has  been  involved  in  some  ob- 
scurity.    Bank  balances  have  no  effect  upon  the 
volume  of  the  currency ;    if  obliterated,  the  vol- 
ume of  the  currency  would  remain  the  same ;  the 
debts  are  set   off  against  the  credits,  and  being 


34  THE   INSTRUMENT    OP    ASSOCIATION  : 

payable  in  current  funds  on  demand,  thus  neu- 
tralize each  other.  Bank  balances,  however, 
are  exceedingly  prejudicial  to  the  stability  of 
debit  banks  at  the  commercial  centre,  in  the  in- 
ception of  a  revulsion.1  Nor  do  bank  reserves 
constitute  any  portion  of  the  working  cur- 
rency, whether  they  consist  of  specie  or  lawful 
money.  They  ought  to  be  composed  entirely 
of  lawful  money  under  the  present  system,  for 
specie  is  no  more  fit  to  exercise  a  salutary  influ- 
ence as  a  reserve,  than  would  be  so  many  bales  of 
cotton  of  equal  value.  Nor  are  compound  inter- 
est notes,  nor  anything  else  that  the  banks  would 
be  reluctant  to  part  with,  except  under  a  panic 
pressure,  fit  to  be  considered  as  a  reserve.  The 
reserves  of  the  banks  are  intended  to  perform 
very  much  the  same  office  as  that  portion  of  an 
army  which  is  held  in  reserve,  during  a  battle, 
and  which,  if  destitute  of  mobility,  is  worse  than 
useless. 

It  is  seen,  then,  that  "the  amount  of  the  cur- 
rency of  a  country  dependent  upon  the  move- 
ment of  its  banks,  is  to  be  found  in  the  circula- 
tion and  the  deposits,  minus  the  quantity  of  spe- 
cie retained  on  hand,"  2  or  whatever  beside  specie 
may  be  held  as  the  reserve.  It  is  a  matter  of 
1  Walker.  2  Carey  and  Walker. 


ITS   COMPONENT   PARTS.  35 

much  surprise  that  Professor  Perry  should  dis- 
pute the  proposition  that  deposits  are  a  portion 
of  the  currency,  and  the  very  high  character  of 
his  work  justifies  an  examination  into  his  reasons 
for  disputing-  a  point  so  well  settled.  His  rea- 
son (1.)  is,  "Because  so  long  as  they  remain 
unchecked  there  is  no  function  of  currency  ahout 
them."  The  answer  to  this  is,  that  they  do  not 
remain  in  the  bank  unchecked,  but  are  constantly 
being  transferred  by  check  from  one  account  to 
another.  An  active  day  in  Wall  Street  will 
witness  the  transfer  of  millions,  several  times 
during  business  hours.  (£.)  "  Because  payments 
made  by  check  do  not  cancel  the  debt  at  once, 
as  when  made  by  currency."  The  answer  to 
this  is,  that  if  a  check  is  ..good,  it  cancels  a  debt 
just  as  effectually  as  a  good  bank  or  legal  tender 
note,  and  with  more  convenience,  since  checks 
can  be  drawn  to  a  point  for  any  fraction  of  a 
dollar.  If  a  check  is  not  good  it  will  not  cancel 
a  debt;  neither  will  a  bank-note  that  is  bad.  (3.) 
"And  because  especially  checks  never  perform 
but  one  of  the  functions  of  currency ;  they  are 
provisionally  a  medium  of  exchange,  but  no 
matter  how  multitudinous  they  may  become,  or 
how  actively  they  may  pass  in  payments,  there 
is  no  tendency  whatever,  as  there  would  be  in  a 


36  THE   INSTRUMENT   OF   ASSOCIATION  : 

corresponding  increase  of  currency,  to  vary  the 
meaning  of  the  word  dollar."  This  is  the  most 
important  objection  urged  by  Professor  Perry, 
but  it  is  fallacious.  There  can  be  no  general  in- 
flation of  prices,  without  increasing  the  circu-. 
lating  notes  or  retail  currency,1  and  this  increase 
of  retail  or  trading  currency  precedes,  or  follows, 
or  accompanies  an  increase  of  loans  and  dis- 
counts, and  consequently  deposits,  thus  increasing 
the  wholesale  or  commercial  currency.  The 
increase  of  deposits  is  as  essential  to  a  general 
inflation  as  an  increase  of  circulating  notes. 
Deposits  are  a  demand  liability  of  the  banks  in 
the  same  degree  and  kind  as  their  circulating 
notes. 

The   following   table  shows   the  course  of  an 
inflation :  — 

Tear.  Circulation.  Deposits.  Year.  Circulation.    Deposits. 

1854  millions  205    187     1858  millions  155    186 

1855  "    187    190     1859   "    193    259 

1856  "    198    210     1860   "    207    253 

1857  "    215    230 

1  "  The  circulation  of  every  country  may  be  considered  as 
divided  into  two  branches  ;  the  circulation  of  the  dealers  with 
one  another,  and  the  circulation  between  the  dealers  and  the 
consumers The  value  of  the  goods  circulated  be- 
tween the  different  dealers,  never  can  exceed  the  value  of 
those  circulated  between  the  dealers  and  consumers."—  Smith. 

Mill  is  also  very  clear  on  this  subject,  quoting  Tooke  and 
Fullarton.     Book  iii.  chap.  xxiv. ;  also  chap.  xii. 


ITS   COMPONENT   PARTS.  37 

It  is  thus  seen  that  in  theory  and  practice 
neither  increase  of  circulation  alone,  nor  of 
deposits  alone,  can  materially  affect  prices  or 
"  vary  the  meaning  of  the  word  dollar,"  but  an 
increase  of  both  is  essential  to  an  inflation,  and 
that  each  is  a  co-worker  with  the  other.  What 
I  shall  have  to  say  upon  the  subject  of  interest, 
or  the  "  charge  for  the  use  of  money,"  may  as 
well  be  said  here  as  elsewhere.  It  is  the  vulgar 
theory,  that  the  greater  the  quantity  of  the  cir- 
culating medium,  the  lower  the  rate  of  interest 
in  consequence.1  This  theory  is  also  maintained 
by  Mr.  Carey,  but  Mr.  Carey's  whole  theory  of 
money,  as  well  as  interest,  is  at  variance  with 
that  of  all  the  known  writers  of  reputation,  I 
believe,  without  a  single  exception.2  I  cannot 
account  for  the  eccentricity  of  Mr.  Carey's 
views,  except  upon  the  hypothesis  that  he  fails 
to  determine  the  relation  of  cause  and  effect, 
throughout  the  whole  course  of  his  reasoning-  on 
the  subject.  It  is  not  without  deliberation  and  a 
sense  of  presumption,  perhaps,  that  I  venture  so 
to  express  myself,  but  I  must  not  shrink  from 
the  task  I  have  undertaken,  and  in  treating  the 

1  This  was  John  Law's  theory. 

2  If  it  be  said  that  Steuart,  who  preceded  Smith,  is  an 
exception,  I  answer  that  his  views,  in  the  language  of  Say, 
"  exhibit  but  a  narrow  and  insignificant  scope." 


389109 


38  THE   INSTRUMENT   OF   ASSOCIATION: 

subject,  I  must  observe  the  necessity  of  entire 
candor.    As  a  general  rule,  it  may  be  stated  that 
the  rate  of  interest  depends  upon  the  law  of  sup- 
ply and  demand.      Money  is  circulating  capital 
in  its  greatest  mobility  of  form,  and  it  is  capital 
in  its  most  convenient  form  that  is  needed  when 
money  is   borrowed.     Money   is  no   sooner   re- 
ceived by  the  person  borrowing,  than  he  converts 
it  into  some  other  form  of  capital,  circulating  or 
fixed ;  and  it  is  upon  the  profitable  use  made  of 
this  latter   that  depends  the  fund  out  of  which 
interest  is  to  be  paid,  with  advantage  to  the  bor- 
rower.    Money    is    circulating    capital,    but  all 
circulating  capital  is  not  money;  and  the  rate  of 
interest  depends  upon  the  supply  of  floating  or 
circulating  capital  to  be  loaned  and  the  demand 
for  borrowing  such  capital.     Money  is  only  the 
medium  by  which  capital   is   transferred   to  the 
borrower.1     It  is  quite  true  that  an  inordinate 
and  sudden  scarcity  of  money  would  necessitate 
a  high  charge  for  its  use  until  prices  had  become 
generally  affected  by  a  considerable  decline  ;  and 
vice  versa,  an  inordinate  and  sudden  abundance  of 
money  would  create  a  low  rate  of  interest  until 
prices  had  become  generally  affected  by  a  con- 

1  "  It  is,  as  it  were,  but  the  deed  of  assignment,  which  con- 
veys from  one  hand  to  another  those  capitals  which  the 
owners  do  not  care  to  employ  themselves."  —  Smith, 


ITS   COMPONENT   PARTS.  39 

siderable  advance.  It  must  be  borne  in  mind, 
however,  that  the  value  of  the  circulating  me- 
dium of  a  nation  is  controlled  by  the  international 
or  universal  laws  of  trade,  or  by  the  "equation 
of  international  demand."1  This  most  important 
principle  seems  to  have  been  ignored  by  Mr. 
Carey  throughout.  Without  dwelling  on  this 
subject,  it  may  be  said  the  rate  of  interest  de- 
pends, first,  upon  the  supply,  that  is  to  say,  the 
amount  of  accumulated  capital  seeking  invest- 
ment ;  second,  upon  the  demand,  which  is  cre- 
ated by  various  circumstances,  —  such  as  the 
profits  of  industry,  the  state  of  the  societary  cir- 
culation, the  extension  of  the  democratic  princi- 
ple in  the  body  politic  and  the  general  distribution 
of  wealth,  the  amount  of  the  funded  debt  of  the 
nation  and  the  rate  of  interest  thereon,  rate  of 
taxation  and  the  wages  of  labor,  and  the  ma- 
terial of  the  currency  of  a  nation,  whether  of 
paper  or  otherwise.  All  these  considerations, 
perhaps,  have  a  bearing  on  the  demand  for  the 
use  of  money,  and  there  may  be  others  which  it 
were  tedious  and  unnecessary  to  analyze.  But 
the   volume  of   currency,  even   if  of  gold,  does 

1  Mill,  Perry,  Bowen,  Smith,  Ricardo,  Hume,  Say,  and 
others.  Mill  considers  Ricardo  as  the  real  originator  of  this 
principle,  but  this  is  not  so.  The  axiom  laid  down  by  Smith 
covers  the  -whole  ground,  and  contains  the  germ  of  the  whole 
principle,  in  all  its  ramifications.     Post,  pp.  52,  65. 


40  THE   INSTRUMENT   OP   ASSOCIATION  : 

not,  by  any  means,  determine  or  affect  the  rate 
of  interest. 

The  instrument  of  association  now  in  use  is 
constituted  in  a  somewhat  peculiar  manner,  upon 
a  basis  of  government  paper  money  or  bills  of 
credit,  irredeemable  promises  to  pay  at  some  in- 
definite time  in  the  future,  but  at  present  paya- 
ble in  nothing,  otherwise  than  as  they  are  received 
for  taxes,  and  whose  circulation  is  therefore  com- 
pulsory.     We  are  to  deal  with  things  as  we  find 
them,  and  therefore  it  is  not  necessary  to  go  into 
an  extended  argument  to  show  the  necessity,  or 
otherwise,  of  the  resort  to  a  revolutionary  cur- 
rency when  the  war  broke  out.    It  may  be  useful 
to  say,  however,  that  when  in  the  course  of  hu- 
man events  two  opposing  social  forces  close  in 
deadly  conflict  for  the  mastery  ;    when  the  civil 
power  of    the-  State  is  successfully  resisted    to 
a   degree    which    renders    the  existence  of    the 
State    itself    contingent    upon    the    fortune    of 
war ;   when  the  foundations  of  society  are  over- 
thrown   and    chaos    reigns ;     when    the    habeas 
corpus  is   suspended  and    the    laws    are   silent, 
it  needs  but  the  issue  of  paper  money  to  com- 
plete the  picture.      It  is  easy  for  so-called  finan- 
ciers, by  ingenious  arguments  a  priori,  to  show 
that  the    issue  of    paper  money  is  unnecessary 


ITS   COMPONENT   PARTS.  41 

and  therefore  wrong ;  but  history  teaches  that 
when  bloody  revolutions  are  undertaken,  paper 
money  is  as  necessary  as  powder  and  guns,  and 
is,  in  fact,  part  of  the  materiel  of  civil  war. 
History  teaches  that  it  always  has  been  so,  and 
political  economy  inculcates  that  it  always  will 
be  so.  Moreover,  in  our  case,  it  was  especially 
necessary,  because,  when  the  war  broke  out,  the 
channels  of  circulation  were  choked  up  and  over- 
flowing with  a  paper  currency,  that  was  on  the 
point  of  becoming  inconvertible.  It  is  one  of 
the  arguments  in  favor  of  a  metallic  circulation, 
that  a  nation  possessing  such  is  always  on  a 
war  footing.  The  genius  of  republican  liberty 
teaches  that  large  standing  armies  are  dangerous 
in  time  of  peace ;  and  the  genius  of  political 
economy  and  republican  liberty  both  teach  that 
a  bloated  paper  currency  in  time  of  peace  is  an 
unmitigated  curse  to  society,  likely  to  provoke 
civil  strife,  and  always  waging  unrelenting  war 
against  the  industry  of  the  people.  The  com- 
ponent parts  of  the  instrument  of  association 
may  be  described  and  enumerated  as  follows :  — 

April  1,  1868.     Plain  legal  tender  notes      .     $356,144,727.00 

National  bank-notes  in  cir- 
culation .  .         .        295,017,089.00 

State  bank-notes  in  circulation     3,310,177.00 


$654,471,993,00 


42  THE   INSTRUMENT   OF   ASSOCIATION  : 

Amount  brought  forward  .....     $654,471,993.00 
Individual  and  other  depos- 
its of  national  banks  556,399,480.76 


1,21CT,871,473.76 


Deduct  actual  legal  tender 


&" 


reserve  l 83,926,780.00 


Total  depending  on  the  government  and 

national  banks 1,126,944,693.76 

To  which  must  be  added  currency  equiva- 
lent of  gold  certificates  of  deposits   .     .  24,838,884.00 

$1,151,783,577.76 


Deposits  of  State  banks  throughout   the 

country,    exclusive  of  the  Pacific  and 

gold-producing  States,  estimated  2    .     .         $100,000,000 
Circulation   of    California,    and    other 

gold-producing    States,  according   to 

the  report  of  the  Comptroller  of  the 

Currency,  November,  1867,  in  gold 

coin $50,000,000 

Estimated  bank  depos- 
its in  those  States     .    50,000,000 


$100,000,000  (  currency  )  140,000,000  3 

I    value     J ■ 

$240,000,000 

1  The  reserve  of  the  national  banks  is  compose.d  of  com- 
pound interest  notes,  coin,  three  per  cent,  certificates,  bank 
balances,  and  legal  tenders.  The  amount  given  here  was  plain 
legal  tender  notes. 

2  I  have  no  accurate  data  for  this  estimate ;  but  the  deposits 
of  the  State  banks  of  New  York  alone  on  Dec.  28,  1867, 
were  $32,957,573.  The  total  of  $100,000,000,  is  probably  an 
under-estimate. 

3  This  total  is  perhaps  over-estimated,  though,  if  the  popu- 
lation of  those  States  be  three  millions,  it  probably  is  not. 


ITS    COMPONENT   PARTS.  43 

The  nominal  value  of  circulation  and  deposits 
throughout  the  country,  is  thus  seen  to  be 
$1,151,783,57776,  +  $240,000,000,  equal  to 
a  total  of  $1,391,783,5777^;  or,  estimating  the 
population  at  35,000,000,*  equal  to  a  per  capita 
total  of  about  forty  dollars  in  currency  value. 
The  instrument  of  association,  then,  is  com- 
posed of  mixed  elements  equal  in  currency  value 
to  about  forty  dollars  per  capita.  In  the  next 
chapter  I  shall  attempt  to  show  the  value  of  this 
instrument,  as  estimated  in  the  common  currency 
of  the  commercial  world.  It  will  be  observed 
that  the  fractional  currency  is  omitted  from  the 
above,  for  the  special  reason  that  it  supplies  the 
place  of  the  gold  and  silver  that  was  carried 
about  in  the  pockets  of  the  people  before  the 
war.2  This  amount  prior  to  the  war  was  an  un- 
known quantity,  and  if  we  make  a  due  allowance 

1  The  Director  of  the  Bureau  of  Statistics  in  1866,  esti- 
mated the  population  at  34,505,882,  a  gain  of  about  ten  per 
cent,  in  six  years. 

2  The  official  estimates  of  the  gold  in  the  country  in  1861 
■were  $275,000,000.  It  would  be  interesting  to  know  the  basis 
of  this  estimate.  The  banks  held  less  than  $90,000,000  ;  the 
people,  perhaps,  $30,000,000.  Where  was  the  remainder? 
It  is  possible  that  the  estimate  included  the  gold  used  in  the 
arts,  and  regarded  it  as  still  in  the  country.  It  seems  pre- 
posterous to  suppose  that  there  was  so  much  gold  coin  in  the 
country. 


44  THE   INSTRUMENT   OP   ASSOCIATION: 

for  increased  prices  now,  it  will  perhaps  be  con- 
ceded that  the  nominal  value  of  this  fractional 
currency  is  probably  greater  than  the  value  of 
the  gold  and  silver  which  constituted  that  un- 
known quantity,  especially  as  the  small  note  cir- 
culation before  the  war  was  abundant.  The 
amount  of  fractional  currency  was  $32,588,- 
689.94*.  Most  extravagant  estimates  have  been 
made  of  this  portion  of  the  currency.  It  con- 
stitutes a  part  of  the  instrument  of  association, 
and  bears  a  uniform  proportion  to  the  general 
currency,  and  is  therefore  thrown  out  as  not  be- 
ing material.  The  circulating  notes  and  deposits, 
less  the  reserve,  are,  for  the  purpose  of  this  dis- 
cussion, sufficient  to  be  considered  as  constituting 
the  instrument  of  association. 


PRINCIPLES   LIMITING   ITS   VALUE.  45 


III. 


THE   PRINCIPLES    OF   POLITICAL    ECONOMY   WHICH 
LIMIT  ITS  VALUE. 

TT  is  a  self-evident  proposition  that  there  is 
some  limit  to  the  value  of  the  instrument  of 
association,  whether  the  circulation  consist  of 
coin  or  of  paper,  which  is  fixed  by  some  un- 
written law  that  is  superior  to  statute  law,  and 
which  cannot  be  set  aside  by  legislative  enact- 
ment. The  very  idea  of  value  may  be  expressed 
by  the  word  scarcity.  It  is  quite  obvious  that 
Congress  cannot  authorize  the  unlimited  issue 
of  bills  of  credit,  without  impairing  their  indi- 
vidual value,  and  finally  their  aggregate  value, 
if  the  issue  be  carried  to  a  great  extent.  There 
is  a  point  at  which  depreciation  begins,  another 
where  it  ends  in  absolute  worthlessness,  and 
intermediate  points  throughout  the  gamut  in 
the  scale  of  depreciation.  It  is  easy  to  define, 
with  tolerable  accuracy,  the  point  at  which  de- 
preciation commences,  and  it  is  here  where  the 
demoralization  of  society  and  the  decay  of  in- 
dustry begins.     "  All  increase  of  money  beyond 


46  THE   INSTRUMENT   OP   ASSOCIATION  : 

this  point,  which  the  very  nature  of  money  itself 
marks  out  as  the  boundary,  leads  to  an  inevitable 
depreciation  of  the  whole  mass,  to  a  consequent 
disturbance  of  all  existing  money  contracts,  to 
a  universal  rise  of  prices  which  are  illusory  and 
gainless,  to  unsteadiness  and  derangement  in  all 
legitimate  business,  and  to  a  spirit  of  restless 
enterprise  and  speculation,  which  seeks  to  draw 
off  the  excess  of  money  in  untried  and  reckless 
experiments."  *  It  is  not  so  easy,  however,  to  de- 
fine the  point  where  depreciation  ends,  because 
such  a  currency  is  commonly  discarded  by  the 
people  before  the  issue  has  reached  the  point  of 
nothingness  in  value;  for  the  moment  that  depre- 
ciation and  fluctuations  begin,  the  instrument  is 
impaired,  and  as  the  fluctuations  grow  wider  the 
instrument  becomes  useless,  although  its  compo- 
nents parts  may  not  be  without  value.  In  prac- 
tice, a  paper  money  currency  is  intolerable  long 
before  it  becomes  without  value  in  theory,  that 
is  to  say,  on  the  basis  of  supply.  The  value  of 
any  commodity  is  limited  by  the  cost  of  repro- 
duction.2 This  axiom  is  true  when  applied  to  a 
metallic  currency,  because  coin  is  a  commodity 
possessing  a  value  independent  of  that  which 
it  derives  from  the  fact  of  its  being  the  instru- 
1  Perry.  2  Carey. 


PRINCIPLES   LIMITING   ITS   VALUE.  47 

ment  of  association.  Paper  money,  on  the  other 
hand,  derives  value  from  one  fact  only  —  that  of 
its  being-  the  instrument  of  association.  But 
the  instrument  of  association,  whether  composed 
of  coin  or  paper,  is  limited  in  value,  as  I  have 
said  before,  by  an  unwritten  law.  If  it  be 
sought  to  increase  the  value  of  the  instrument 
of  association,  when  composed  of  coin,  beyond 
the  limit,  the  coin  will  flow  out  of  the  country, 
or  be  used  in  the  arts,  or  cease  to  be  produced. 
If  it  be  sought  to  increase  the  value  of  the  in- 
strument of  association,  when  composed  of  pa- 
per, beyond  the  limit,  the  paper  must  suffer  de- 
preciation. The  law  which  limits  the  value  of 
the  instrument  of  association,  is  one  of  the  most 
important  laws  of  political  economy.1  It  is  also 
a  law  which,  I  think,  has  received  less  attention 
and  elaboration  than  any  other  of  equal  impor- 
tance. It  may  be  stated  in  the  form  of  a  syllo- 
gism thus:  (1.)  The  money  value  or  price  of 
the  instrument  of  association,  or  wheel  of  circu- 
lation,2 bears  a  certain  proportion  to  the  money 
value  or  price  of  commodities  which  it  is  used 
to  circulate,  and  by  a  physical  law  it  is  confined 

1  "  Few  writers  since  Ricardo  have  had  an  adequate  con- 
ception of  the  scientific  value  of  this  principle." — Mill,  book 
hi.  chap.  xxi. 

2  Smith. 


48  THE   INSTRUMENT   OF   ASSOCIATION  : 

within  this  limit.     This  is  a  self-evident  propo- 
sition. (2.)  The  average  money  value  or  price  of 
commodities  within  any  nation,  is  regulated  and 
limited  to  the  average  money  value  or  price  of 
commodities  throughout  the   commercial  world, 
by  the  operations  of  international  trade,  anything 
in  the  tax  laws  of  any  nation  to  the  contrary  not- 
withstanding.1   (3.)  Therefore,  the  money  value 
or  price  of  the  instrument  of  association  within 
any  nation  is  independent  of  statute  law,  and  is 
fixed  by  the  natural   laws   of  trade,   or  by  the 
tides  of  commerce,  or,  as  it  were,  by  the  law  of 
gravitation.    The  major  premise  of  the  syllogism 
is,  as  I  have  stated,  self-evident ;  but   it  may  be 
said  that   the  proportion  of  value   borne  by  the 
instrument   of  association,   to  the  value  of    the 
commodities  circulated,  has   been  variously  esti- 
mated   from    one  fifth   to  one  thirtieth,2   and  a 
recent  writer  has  estimated  it  as  low  as  one  for- 
tieth;3 but  it  is  impossible  to  ascertain  the  values 
exchanged  in  any  community,  and  consequently 
it  is  impossible  to  ascertain   the  ratio  of  value 
borne  by  the  medium  of  exchange,  though,  as 
will  be  demonstrated  hereafter,  it  is  not  difficult 
to  determine,  very  nearly,  the  approximate  value 

1  "  The  'equation  of  international  demand,  is  the  law  of 
international  trade."  —  Mill. 

2  Smith  and  Say.  3  Perry. 


PRINCIPLES   LIMITING    ITS    VALUE.  49 

of  the  medium  itself.  Whether  the  instrument 
be  of  coin  or  paper,  the  premise  is  the  same. 
"  England,  in  its  actual  state,  requires,  for  the 
effectuation  of  its  sales  and  purchases,  an  agent 
or  medium  equal  in  value,  say  to  1,284,000 
pounds  weight  of  gold  ;  or,  what  is  the  same 
thing,  to  1 ,200,000,000  pounds  weight  of  sugar ; 
or,  what  is  still  the  same  thing,  to  60,000,000 
pounds  sterling  of  paper."  *  Now,  if  the  propor- 
tion borne  by  the  medium  of  exchange  to  the 
products  exchanged  was,  in  value,  as  one  to 
thirty,  then  the  value  of  the  commodities  ex- 
changed was  1,800,000,000  pounds  sterling. 
Now,  suppose  the  instrument  of  association  to  be 
increased  to  2,568,000  pounds  weight  of  gold, 
or  to  2,400,000,000  pounds  of  sugar,  or  to 
120,000,000  pounds  sterling  of  paper,  what  is 
the  effect  %  Simply  that  the  wages  of  labor  will 
be  doubled,  and  that  the  prices  of  all  other  com- 
modities will  be  doubled,  but  the  ratio  of  value 
between  the  instrument  and  the  commodities  will 
remain  unchanged.2  Two  pounds  weight  of  gold, 
or  two  pounds  weight  of  sugar,  or  two  pounds 
sterling  of  paper  will  purchase  no  more  value 
than  would  one  pound  of  gold,  or  sugar,  or  pa- 

1  Say,  in  1803. 

2  Prices  will  be  doubled,  but  values  will  remain  unchanged. 

4 


50  THE    INSTRUMENT    OF   ASSOCIATION  : 

per  before  the  change  was  made ;  and  the  price 
of  the  total  commodities  exchanged  would  be 
doubled  as  estimated  against  the  medium  of  ex- 
'change,  but  as  estimated  against  the  wages  of 
labor,  the  value  of  the  commodities  would  remain 
unchanged.  It  is  quite  true  that  rapidity  of  cir- 
culation is  important  to  be  considered  ;  and  hence, 
if  commodities  of  the  value  of  1,800,000,000 
pounds  sterling  were  to  be  circulated  by  30,000,- 
000  pounds  sterling  of  paper,  or  600,000,000 
pounds  weight  of  sugar,  or  642,000  pounds 
weight  of  gold,  then  the  circulation  must  be  twice 
as  rapid  as  when  the  medium  of  circulation  was 
twice  as  great,  thus  proving  the  axiom  stated  else- 
where, that  the  smaller  the  volume  of  the  currency, 
the  more  rapid  the  circulation,  and  the  greater 
the  prosperity  of  the  nation.1  "  If  each  piece  of 
money  changes  hands  on  an  average  ten  times 
while  goods  are  sold  to  the  value  of  a  million 
sterling,  it  is  evident  that  the  money  required  to 
circulate  those  goods  is  .£100,000."  2  It  is  impor- 
tant to  preserve  the  distinction  between  money  as 
an  instrument  of  commerce,  and  as  a  measure 
of  value.  "  There  is  the  same  difference  between 
money  as  a  medium  and  money  as  a  measure, 
that  there  is  between  a  bushel  of  wheat  and  that 
i  Ante,  p.  19.  a  Mill. 


PRINCIPLES   LIMITING    ITS   VALUE.  51 

round  thing-  by  which  we  determine  that  there  is 
a  bushel."1  A  bushel  of  wheat  weighs  about 
sixty  pounds  ;  but  supposing  that  the  use  of  two 
measures,  each  denominated  bushels,  was  made 
compulsory  in  order  to  measure  sixty  pounds  of 
wheat,  then,  of  course,  two  bushels  of  wheat 
under  the  new  rule  are  only  equal  to  one  bushel 
under  the  old  rule,  and  the  medium  of  exchange 
has  depreciated  fifty  per  cent.,  though  the  sixty 
pounds  of  wheat  as  a  measure  of  value  is  un- 
changed. It  seems  supererogatory  to  attempt 
to  demonstrate  this  premise  any  further,  and 
I  pass  on  to  the  elucidation  of  the  minor  prem- 
ise. It  remains  to  demonstrate  that  the  prices 
of  commodities  within  any  nation  are  limited, 
by  the  operations  of  international  trade,  to  the 
prices  of  corresponding  commodities  throughout 
the  commercial  world.  When  the  currency  of 
a  nation  is  redundant,  prices  of  commodities 
are  high,  especially  such  as  are  the  product 
of  labor,  rather  than  the  product  of  the  soil ; 2 
and  the  consequence  is,  that  similar  com- 
modities produced  within  a  nation  where  there 
is  a  sound  currency,  and  where  they  can 
be  produced  at  cheaper  price,  will  inevitably 
flow  in  to  the  highest  market,  and  so  continue, 
1  Perry.  2  This  is  an  important  fact. 


52  THE   INSTRUMENT   OF   ASSOCIATION  : 

until  the  prices  are  equalized  by  a  reduction  of 
the  currency.  The  rate  of  exchange  is  alio  ay  8 
against  that  country  ivhich  maintains  a  depreci- 
ated currency}  This  is  an  axiom.  Any  cur- 
rency that  is  in  excess  of  the  prescribed  limit,  is 
a  depreciated  currency,  whether  it  consist  of  gold 
or  paper.  It  is  wholly  in  vain  that  recourse  is 
had  to  the  tariff'  to  prevent  the  importation  of 
commodities,  especially  manufactured  commodi- 
ties ;  for  taxes,  whether  internal  or  external,  so 
far  as  they  operate  upon  the  cost  of  producing 
any  commodities  within  any  nation,  tend  to  en- 
hance cost  of  production,  and  therefore  do  not 
prevent  importation.  Suppose,  for  instance,  that 
woolen  goods  are  barred  out  beyond  the  possi- 
bility of  smuggling.  What  is  the  consequence'? 
Why,  the  cost  of  home-made  woolen  goods  is 
immediately  advanced  by  the  law  of  supply  and 
demand,  and  the  advance  in  these  home-made 
woolen  goods  is  felt  by  the  producers  of  domestic 
cotton,  linen,  and  silk  goods ;  and  the  productions 

1  Smith.  It  is  not  intended  to  say  that  the  rate  of  exchange, 
owing  to  the  shipment  of  bonds  and  securities,  may  not  be  for 
a  time,  and  occasionally,  in  favor  of  a  country  which  has  a  de- 
preciated currency.  The  fact  that  bonds  are  shipped  proves 
the  rule,  rather.  The  balance  of  account  on  merchandise 
transactions  will  always  be  against  the  nation  whose  currency 
is  redundant. 


PRINCIPLES   LIMITING   ITS    VALUE.  53 

of  iron  and  of  the  soil,  and  their  products  are 
all  enhanced  in  cost  in  consequence,  until  they, 
in  turn,  become  subjected  to  foreign  competition. 
Moreover,  the  government  must  have  revenue, 
and  if  it  cannot  collect  from  woolen  goods,  it 
must  collect  from  some  other  products,  domestic 
or  foreign,  which  taxation  must  finally  fall  on 
the  producer  of  domestic  commodities.1  "  If  by 
any  means  one  nation  should  obtain  a  larger  por- 
tion of  the  whole  currency  of  the  world  than 
falls  to  it  by  the  regular  course  of  trade,  all  arti- 
cles of  merchandise  belonging  to  that  nation 
must  rise  in  price ;  they  must  be  exchanged  for 
a  larger  quantity  of  money.  Articles  of  foreign 
growth  and  manufacture  would  be  irresistibly 
attracted  thither  by  this  alteration  of  values.  A 
single  article  might  possibly  be  excluded  by  pro- 
hibitory legislation.  But  no  arbitrary  enactments 
can  so  clip  the  wings  of  commerce  as  to  prevent 
it  from  seeking  a  market  in  a  country  where  the 
prices  of  all  commodities  have  risen  above  their 
average  value  all  the  world  over.  Foreign  goods 
must  necessarily  be  imported  in  such  a  case, 
whether  by  open  trading  or  by  smuggling ;  and 

1  It  is  a  mistake  to  suppose  that  all  taxation  does  not  finally 
fall  on  the  producer.  An  exception  to  this  rule,  however,  is 
noted  hereafter. 


54  THE   INSTRUMENT   OP  ASSOCIATION  : 

being  imported,  they  must  be  paid  for.  Money- 
is  the  only  redundant  article  in  such  a  commu- 
nity, the  only  one  which  can  be  offered  in  pay- 
ment ;  for  all  other  goods  are,  by  the  hypothesis, 
of  a  higher  price  with  them  than  in  any  other 
country,  and  cannot  be  sent  abroad  but  by  a  sac- 
rifice. Money,  then,  will  be  exported,  in  spite 
of  all  coast  guards,  and  even  of  the  penalty  of 
death ;  and  the  currency  would  thus  be  reduced 
to  its  natural  level."  *  Money  advances  in  value 
as  it  declines  in  quantity,  and  declines  in  value 
as  it  advances  in  quantity,2  like  anything  else. 
Money  is  not  a  commodity  of  which  an  un- 
limited quantity  can  be  absorbed  by  business,  but 
is  an  instrument  for  a  certain  specific  purpose.3 
So  are  sewing-machines.4  Therefore,  money 
being  for  a  certain  specific  purpose,  that  of  ex- 
changing commodities  (it  does  not  create  com- 
modities, on  the  contrary,  it  checks  production, 
when  in  excess5)  already  existing  and  waiting  to 
be  exchanged,  it  follows  that  an  increase  of  sup- 
ply must  decrease  the  value,  in  obedience  to  the 
law  of  supply  and  demand.  So  that,  when 
money  is  unduly  increased  in  one  country,  it  will 
go  abroad  where  it  will  be    more   appreciated.6 

1  Bowen.  2  Say.  3  Perry.  4  Ibid. 

5  It  temporarily  stimulates  trade. 

6  Ante,  p.  20.    Ricardo. 


PRINCIPLES   LIMITING   ITS   VALUE.  55 


*• 


It  therefore  follows,  that  when  prices  are  high 
in  one  country,  commodities  are  imported,  and 
money  is  exported,  until  the  prices  are  equalized 
throughout  the  commercial  world.1  The  con- 
verse  of  this  proposition  is  also  true,  namely,  the 
value  of  the  currency  of  any  nation  cannot  re- 
main below  a  certain  point  for  a  lengthy  period, 
because  commodities  will  fall  in  price  and  be 
exported,  and  money  will  be  imported.  The 
lower  the  value  of  the  currency  of  a  nation,  the 
more  advantageous  its  foreign  trade,  showing 
again  the  truth  of  the  axiom  elsewhere  stated.2 
I  trust  I  have  satisfactorily  demonstrated,  the 
minor  premise  of  the  syllogism,  and  the  conclu- 
sion follows,  —  that  the  value  of  the  instrument 
of  association  is  fixed  by  natural  law,  and  is 
wholly  independent  of  legislation. 

One  of  the  most  important  principles  of 
political  economy  having  been  demonstrated,  it 
becomes  a  question  how  to  apply  it  to  the  instru- 
ment of  association  in  this  country.  How  shall 
we  ascertain  the  value  of  the  instrument  of 
association  as  fixed  by  the  natural  laws  of  trade, 

1  "  If  a  country  has  more  money  than  is  sufficient  to  accom- 
plish its  exchanges,  it  sends  it  abroad,  and  receives  back  some- 
thing that  it  needs  more."  —  Wayland. 
2  Ante,' p.  19. 


56  THE   INSTRUMENT    OF   ASSOCIATION 


*• 


and  what  is  that  value  X  We  have  seen  that  the 
nominal  value  in  paper  of  our  currency  is  close 
upon  ll^OOjOOO^OO,1  and  it  is  proposed  by 
some  to  increase  this  nominal  valuation.  It  is 
said  occasionally,  that  the  "  opinion  of  some  of 
our  best  financiers  "  is,  that  we  have  no  more 
money  than  we  need ;  and  one  of  the  leading- 
metropolitan  journals  stated,  that  it  preferred  "to 
resume  specie  payments  by  a  moderate  expan- 
sion rather  than  by  contraction."  The  premium 
on  gold  is  no  more  a  criterion  of  the  value  of  the 
instrument  of  association,  than  the  price  of  cot- 
ton, for  gold  is  demonetized,  and  has  become  a 
commodity  only,  in  the  domestic  market.  Be- 
sides, it  is  higher  now  than  when  the  volume  of 
currency  was  greater,  three  years  since,  and  is 
or  has  been  governed  by  the  caprice  of  one  man. 
Nor  are  the  wages  of  labor  any  criterion  of  the 
value  of  the  instrument  of  association,  for,  com- 
pared with  the  cost  of  living  and  the  precarious 
and  unsteady  character  of  the  demand  for  labor, 
they  are  below  what  an  industrious  and  honest 
man  has  a  right  to  expect  in  this  country.  Po- 
litical economy,  as  I  have  said,  is  an  experimental 
science  and  deals  with  facts ;  it  does  not  advance 
gratuitous  assumptions  ;   it  has  nothing  to  do  with 

1  Ante,  p.  43. 


PRINCIPLES   LIMITING    ITS   VALUE.  57 

false  premises  and  illogical  conclusions.  If  Adam 
Smith  were  alive  to-day,  with  more  modesty 
than  "  our  best  financiers," 1  he  would  say, —  Un- 
less I  turn  to  your  history,  I  cannot  form  any 
opinion  of  what  the  value  of  your  currency  may 
be,  because  there  is  nothing  upon  which  I  can 
base  an  intelligent  opinion  ;  but  judging  from  the 
fact  that,  since  the  abandonment  of  the  specie 
standard,  besides  exporting  rather  more  than 
your  gold  product,  you  have  accumulated  an  in- 
terest bearing  debt  to  foreign  nations  of,  perhaps, 
a  thousand  millions  of  dollars  ;  the  gold  value  of 
your  currency  is  maintained  very  much  above  its 
true  value,  and  unless  adjusted  to  its  true  value, 
you  will  be  overtaken  by  the  greatest  catastrophe, 
considering  its  probable  effects,  that  is  yet  re- 
corded in  history.  Turning  then  to  history,  and 
beginning  at  the  period  when  the  influence  of  the 
accession  of  the  precious  metals  from  the  mines 
of  California  and  Australia  was  felt  by  the  com- 
mercial world,  it  is  seen  that  the  value  of  the 
instrument  of  association    is  there   defined  with 

1  "  The  results  of  such  an  education  were  most  disastrous 
to  England,  for  there  arose  a  race  of  so-called  financiers  ;  — 
men  who  drew  their  political  economy  from  the  traditions  of 
the  Exchequer,  and  their  financial  knowledge  from  the  Stock 
Exchange."  —  British  Finance  in  1816  :  iV.  A.  Review,  April, 
1867,  Art.  ii.  p.  379. 


58 


THE   INSTRUMENT    OP    ASSOCIATION  : 


marvelous    accuracy. 

Let    the  following-  table 

show 

; 

Year. 

Cir.  &  Dep. 

Cir.  &  Dep. 

Specie 

Movement. 

Millions. 

Per  Capita. 

Net  Import. 

Net  Export. 

1849 

$205 

$9.18 

$1,246,592 

1850 

240 

10.32. 

. 

.  $2,894,202 

1851 

284 

11.71 

. 

24,019,160 

1852 

328 

13.38  . 

•         .         • 

.  37,169,091 

1853 

348 

13.90 

. 

23,285,493 

1854 

392 

15.25  . 

. 

.  34,478,272 

1855 

377 

14.22 

•         •         • 

52,587,531 

1856 

408 

14.90. 

. 

.  41,537,853 

1857 

445 

15.60 

.         .         .         , 

56,675,123 

1858 

341 

11.56  . 

. 

.  33,358,651 

1859 

452 

14.87 

. 

57,517,708 

1860 

460 

14.84 . 

. 

.  57,996,104 

By  the  foregoing  table,  the  average  per  cap- 
ita proportion  of  circulation  and  deposits,  was 
<$13iG08o  during  the  twelve  years  from  184*9  to 
1860  inclusive,  and  under  this  average,  the  en- 
tire product  of  the  mines,  excepting  what  was 
consumed  in  the  arts,  has  been  exported.  In 
1854,  the  annual  product  of  the  mines  was  not 
only  exported,  but  the  specie  reserves  of  the 
bank  were  drawn  on ;  on  the  following  year,  the 
banks  made  a  small  gain  in  the  specie  reserve, 
and  in  1856  they  began  to  lose  again,  till  in 
1857  they  were  drawn  down  lower  than  they 
were  in  1837,1  and  the  banks  suspended  specie 


1  In  proportion  to  circulation. 


PRINCIPLES   LIMITING   ITS   VALUE.  59 

payments.  The  incontestable  —  the  historical 
fact  then  is,  that  the  value  of  the  instrument  of 
association  in  this  country  is  at  the  rate  of  IStVo 
dollars  per  capita ;  and  beyond  this  point  the 
currency,  whether  it  consist  of  coin  or  paper,  be- 
comes depreciated  as  estimated  against  the  cur- 
rency of  the  commercial  world,  and  imports  are 
greater  than  exports  by  the  value  of  our  gold 
product;  *  and  if  foreign  nations  do  not  take  our 
gold  product,  we  shall  begin  accumulating  a 
debt.  Estimating  our  population  at  34,500,- 
000,  the  value  of  the  instrument  of  association 
is  $4*71,960,000,  and  whenever  any  additiun  is 
made  to  this  value,  the  coin  equivalent  thereof 
must  go  abroad,  or  we  must  run  in  debt  to  for- 
eign nations.  This,  I  say,  is  the  value  in  the 
common  currency  of  the  world,  and  if  we  go  on 
and  issue  paper  forever,  the  whole  mass  will  be 
worth  no  more  than  this  sum.2  Why  is  this  \ 
Because  the  business  of  circulating-  all  the  values 

1  And  in  proportion  as  we  exceed  the  limit,  so  is  the  excess 
of  imports.  If  with  gold  at  SI. 40,  the  per  capita  is  $30,  or 
more  than  twice  the  limit,  then  the  imports  of  merchandise 
must  be  more  than  twice  the  exports  of  merchandise.  That 
is,  if  the  exports  of  merchandise  are,  gold,  S200, 000,000,  then 
the  imports  will  be,  $400,000,000,  or  $200,000,000  in  excess. 
If  we  export  $50,000,000,  gold,  then  we  must  create  a  debt 
of  $150,000,000,  gold.     I  state  this  as  a  general  principle. 

2  John  Adams. 


60  THE   INSTRUMENT   OF   ASSOCIATION  : 

of  the  United  States  requires  no  larger  value.1 
Of  what  value  then  is  "  the  opinion  of  some  of 
our  best  financiers,"  in  the  face  of  these  facts'? 
But  the  circumstances  of  the  country  are  not  the 
same  as  they  were,  it  may  be  said.  Granted ; 
but  the  circumstances  of  other  countries  are  very 
much  the  same,  and  it  is  the  value  of  the  com- 
mon currency  of  the  commercial  world  that  lim- 
its the  value  of  our  currency.  But  there  has  been 
a  general  rise  of  prices  throughout  the  commercial 
world,  it  may  be  said.  Granted  ;  but  the  agency 
of  steam  and  electricity,  increase  of  book  credits 
and  other  expedients  have  so  economized  the  use 
of  money,  that  no  more  per  capita  is  required 
than  half  a  century  since.  The  circulation  and 
deposits  of  the  Bank  of  England  are  no  greater 
per  capita  than  thirty  years  ago.2  But  we  are 
subjected  to  heavy  taxation,  and  taxation  tends  to 
enhance  the  cost  of  commodities,  and  therefore 
we  require  a  greater  value  to  circulate  those  com- 
modities.    The  conclusive  answer  to  this  objec- 

1  Say. 

2  In  1836  it  required  $17.60  per  capita  to  cause  a  revulsion, 
and  in  1856  it  required  only  $15.60.  The  genius  of  the  age 
tends  to  a  less  amount  of  money  being  employed  as  the  instru- 
ment of  association.  As  wealth  increases,  more  gold  is  used 
in  the  arts  and  less  for  money.  "  Proportion  borne  by  money 
to  commerce,  decreases  in  advancing  countries." —  Carey. 


PRINCIPLES   LIMITING   ITS    VALUE.  61 

tion  is,  that  the  average  prices  of  commodities 
in  this  country  cannot  rise  above  the  average 
prices  of  commodities  throughout  the  commercial 
world,  and  consequently,  if  taxation  is  increased, 
the  wages  of  labor,  rent,  and  profits1  must  be 
reduced.2  If  this  were  not  so,  manifestly  there 
would  be  no  limit  to  the  ability  of  a  nation  to 
support  taxation.  If  the  consequence  of  taxa- 
tion was  the  increase  of  prices  merely,  we  could 
support  any  amount  of  taxation  ;  but  the  moment 
that  prices  are  increased  beyond  a  certain  limit, 
excessive  importation  results,  production  ceases, 
and  labor  starves.  "  The  quantity  of  precious 
metals  retained  in  circulation  as  coin,  for  the 
whole  world,  regulates  itself  through  the  aggre- 
gate amount  of  money  actually  needed  by  all 
mankind  to  effect  their  exchanges  —  regulates 
itself  wholly  irrespective  of  the  efforts  made  by 
one  government,  or  by  all  governments,  to  in- 
crease or  diminish  its  amount." 3  Such  is  the 
inexorable  law,  —  "  Hitherto  shalt  thou  come, 
but  no  further ;  and  here  shall  thy  proud  waves 
be  stayed." 

i  Smith. 

2  This  is  why  taxation  is  finally  paid  by   the    producing 
classes. 

3  Bowen. 


62  THE   INSTRUMENT   OF   ASSOCIATION  : 


IV. 

ON    ITS    ADJUSTMENT. 

TF  the  circulation  consist  of  coin,  the  instru- 
ment  of  association  will  be  self-adjusting- ;  but 
if  the  circulation  consist  of  bills  of  credit, 
whether  the  exigency  which  called  them  forth  be 
passed  or  not,  the  instrument  must  be  adjusted 
by  the  sovereign  power,  or  bankruptcy,  —  the 
universal  bankruptcy  of  the  people,  accompanied 
perhaps  by  civil  strife,1  will  become  a  question  of 
time  only.  In  order  to  effect  the  adjustment 
of  the  instrument  it  is  necessary,  first,  to  exam- 
ine its  condition.  The  value  of  the  instrument 
of  association  in  the  United  States  does  not 
exceed  about  13^0%  dollars  of  the  common  cur- 
rency of  the  world  per  capita.,  or  in  the  lump, 
about  $500,000,000,  or  about  £  1 00,000,000  as 
a  maximum.2  This  is  its  value,  fixed,  not  by  us, 
but  in  spite   of  us,  by  a  law  over  which  neither 

1  Shay's  Rebellion  and  the  "  Reign  of  Terror  "  were  caused 
by  paper  money. 

2  Ante,  p.    58,  or  little  more  than  2,000.000  pounds,  troy 
weight,  of  pure  gold. 


ITS    ADJUSTMENT.  63 

this  nor  any  other  nation  exercises  the  slightest 
control.  The  value  in  paper,  as  we  have  seen,1 
is  about  $1,400,000,000,  and  by  maintaining 
the  price  of  gold  at  $1.40,  the  artificial  price  [not 
value  in  the  common  currency  of  the  world),2 
or  gold  weight,  is  about  $  1 ,000,000,000.  With 
the  price  of  gold  at  $5.80,  the  gold  weight 
of  the  instrument  will  be  reduced  to  its  true  max- 
imum value  —  $500,000,000  in  the  currency  of 
the  world.  It  is  here  necessary  to  repeat  an 
axiom  elsewhere  stated  3  (and  I  ask  careful  at- 
tention, else  my  proposition  will  be  regarded  a 
paradox),  laid  down  by  Say,  to  wit:  Money  ad- 
vances in  value  as  it  declines  in  quantity,  and 
declines  in  value  as  it  advances  in  quantity* 
In  other  words,  as  the  gold  weight  of  our  paper 
instrument  increases,  so  it  becomes  unwieldy  and 
depreciated  as  an  instrument  of  association. 
Suppose  that  our  circulation  were  coin  instead  of 
paper.  Then  the  circulation  and  deposits  would 
be  $1,400,000,000  in  gold  weight,  and  estimated 
against  the  wages  of  labor,  would  be  more  depre- 

1  Ante,  p.  43. 

2  The  common  currency  of  the  world  is  gold,  but  gold  that 
will  purchase  more  labor  than  American  gold  will  in  the 
United  States. 

3  Ante,  p.  54. 

4  The  idea  is  not  Say's  own,  but  the  language  merely. 


64  THE   INSTRUMENT    OF    ASSOCIATION  : 

ciated  than  now.1  I  crave  attention  then  to  the 
very  important  proposition,  that  the  value  of  the 
instrument  of  association  is  inversely  as  its  gold 
weight,  and  the  depreciation  of  the  instrument 
of  association  is  vice  versa,  directly  as  its  gold 
weight.  It  is  not  that,  our  circulation  and  de- 
posits being-  $  1 ,400,000,000  in  paper,  the  ex- 
change with  foreign  nations  is,  in  consequence, 
against  us  ;  but  it  is  because  the  gold  weight  of 
our  circulation  and  deposits  is  $1,000,000,000, 
that  exchange  is  against  us.  If  the  gold  weight 
of  our  circulation  and  deposits  does  not  exceed 
$500,000,000,  our  merchandise  transactions  will 
balance  each  other  by  the  aid  of  the  export  of 
our  gold  product,  and  we  shall  cease  to  run  in 
debt.  It  will  be  seen  that,  with  the  average  of 
$13T608o  per  capita,  our  gold  product  was  ex- 
ported, so  that  if  the  gold  value  of  our  circu- 
lation and  deposits  now  be  |13  tVo,  the  cur- 
rency will  be  restored  to  its  ante-war  value.  I 
ought  to  state  that  $500,000,000  is  the  true 
maximum  value  of  the  instrument  of  association. 
If  we  wish  to  turn  the  exchange  in  our  favor,  so 
as  to  accumulate  gold  wherewith  to  establish  a 
sound  currency,  then  we  must  contract   the   in- 

1  Under  such  circumstances  our  export   trade   would  be 
brought  nearly  to  a  halt. 


ITS   ADJUSTMENT.  65 

strument  of  association  below  the  measure  of 
$500,000,000  gold.  Our  legal  tender  notes, 
in  themselves,  convey  no  definite  idea  of  value 
at  all  ; l  whatever  value  they  possess,  accrues  to 
them  from  the  fact  that  they  form  the  materials 
of  the  instrument  of  association,  and  the  value 
of  the  instrument  of  association  cannot  exceed, 
at  present,  $500,000,000  gold.  If,  by  reason 
of  drawing  gold  from  the  people  by  taxes,  and 
selling  it,  the  value  of  the  instrument  is  nomi- 
nally enhanced  to  $1,000,000,000,  the  enhanced 
value  is  apparent  only,  for  the  real  and  true  result 
is  that  the  gold  itself  is  depreciated  fifty  per  cent. ; 
and  as  the  exchange  is  always  against  that 
country  to  Inch  maintains  a  depreciated  currency? 
it  results  that  as  a  nation  we  are  owing  a  demand 
debt  of  a  thousand  millions  of  dollars,3  with  in- 
terest thereon  at  the  rate  of  six  per  cent,  per 
annum,  besides  having  exported  the  annual  gold 
product.  The  nation  has  been  consuming  more 
than  it  has  been  producing  even  since  the  war 
closed,  and  taxation  is  encroaching  upon  capital, 
and  we  seem  to  be  approaching  the  abyss  of 
bankruptcy,   slowly,    perhaps,    but    yet    surely. 

1  Say.  2  Smith. 

3  It  is  not  probable  that  this  estimate  is  excessive.  As 
between  commercial  nations,  these  bonds  constitute  a  demand 
debt. 


66  THE   INSTRUMENT   OP  ASSOCIATION  : 

Was  ever  the  insensate  folly  of  empiricism  at- 
tended bv  more  disastrous  results]  It  seems  to 
me  that  the  administration  of  our  fiscal  affairs 
has  been  profligate  beyond  any  possible  parallel. 
I  know  not  whether  the  people  will  ever  realize 
the  truth  of  our  terrible  financial  situation  in 
time  to  prevent  a  great  catastrophe  ;  but  I  believe 
that,  sooner  or  later,  they  will  learn  to  execrate 
the  authors  of  a  policy  which  has  impoverished 
thirty  millions  of  people,  and  brought  disgrace 
upon  their  cherished  name  and  fame  among  the 
nations  of  the  earth. 

The  adjustment  of  the  instrument  of  associa- 
tion consists  in  establishing  its  value  to  the  sum 
of  $500,000,000  gold,  or  less,  in  order  to  turn 
the  exchange  in  our  favor.  There  is  only  one 
method  by  which  this  adjustment  can  be  made. 
It  is  the  popular  idea  that  the  currency  can  and 
must  be  contracted  or  funded,  until  the  circulation 
and  deposits  are  reduced  to  the  nominal  limit.1 
Can  this  be  done  \  I  lay  it  down  as  a  law  of  po- 
litical economy,  that  the  currency  can  neither  be 
contracted  nor  funded,  and  that  the  attempt  to  do 
either  will  ruin  the  debtor  classes,  destroy  the  cap- 

1  This  seems  to  be  the  idea  of  Secretary  McCulloch.  It 
may  also  be  entertained  by  many  others,  but  a  little  reflec- 
tion will  suffice  to  dispel  it. 


ITS   ADJUSTMENT.  67 

ital  of  the  banks,  national  and  state ;  it  will 
destroy  the  value  of  the  public  securities  and  the 
credit  of  the  nation,  and  perhaps  cause  the  over- 
throw of  the  government  itself.  I  lay  it  down 
as  a  law  of  political  economy,  that  our  paper 
money  is  worth  about  thirty-three  cents  on  the 
dollar,  and  that  it  is  as  impossible  to  restore  this 
currency  to  the  value  of  one  hundred  cents  on 
the  dollar,  as  to  transmute  one  third  of  a  dollar's 
worth  of  gold  into  one  dollar's  worth  of  gold. 
It  does  not  represent  sufficient  value.  Facilis 
descensus}  It  is  easy  to  take  from  that  which  is, 
but  it  is  impossible  to  take  from  that  which  is  not. 
There  is  not  an  instance  in  history  where  govern- 
ment paper  money  once  issued  to  excess,  has 
ever  been  contracted  or  funded,  nor  is  it  likely 
there  will  be.  Nay,  more,  I  lay  it  down  as  a 
law  of  political  economy,  that  if  the  present 
condition    of   the    instrument   of   association    be 

1  .  .  .  .  Facilis  descensus  Averno  ; 
Noctes  atque  dies  patet  atri  janua  Ditis  : 
Sed  revocare  gradual,  superasque  evadere  ad  auras, 
Hoc  opus,  hie  labor  est. 

The  currency  is  precisely  in  the  same  condition  as  if  the 
circulation  were  coin,  and  the  coin  had  been  clipped  from 
time  to  time,  so  that  two  thirds  had  been  clipped  away,  leav- 
ing only  one  third  of  the  original  coin  to  represent  a  dollar, 
and  this  third  made  a  legal  tender.  The  deceit  is  perfect :  the 
value  has  disappeared. 


68  THE   INSTRUMENT   OF   ASSOCIATION  : 

maintained ;  if  the  government  is  able  to  main- 
tain the  price  of  the  legal  tender  notes  at  seventy 
cents  when  their  value  is  thirty-three  cents,  and 
persists  in  so  doing,  it  will  have  to  make  addi- 
tional issues  from  time  to  time,'  or  the  people 
will  starve.  I  mean  to  say  that  if  the  govern- 
ment wishes  to  maintain  the  price  of  the  currency 
above  its  value,  then  it  must  supply  the  people 
from  the  printing-press  ;  for  the  industry  of  the 
people  will  not  enable  them  to  supply  themselves. 
I  do  not,  of  course,  expect  the  people  will  starve, 
but  I  expect  the  present  status  must  be  radically 
changed,  or  the  people  will  demand  a  further 
issue ;  and  if  any  party  attempts  to  stand  in  the 
way  of  their  necessities,  it  will  be  their  right  and 
duty  to  assert  their  sovereign  power.  Towards 
the  close  of  the  French  Revolution  "the  arbitrary 
government  of  the  Jacobins,  who  were  then  in 
power,  having  put  in  forced  circulation  the  an- 
ticipated proceeds  of  the  property,1  now  under- 
took to  sustain  the  value  of  its  currency  by  penal 
enactments.  They  might  as  well  have  enacted 
laws  to  prevent  the  sun  from  setting  at  the  close 
of  the  day.  Six  years'  imprisonment  was  de- 
nounced against  any  one  who  should  exchange 

1  In  this  country  it  is  the  anticipated  proceeds  of  the  public 
revenue  which  is  exhausting  the  people. 


ITS   ADJUSTMENT.  69 

any  amount  of  silver  or  gold  for  a  greater  nomi- 
nal value  of  assignats  ;  and  a  maximum  of  price 
was  established  for  bread  and  the  other  necessa- 
ries of  life.  The  only  consequence  was,  that  the 
owners  of  grain  and  other  commodities  refused  to 
bring  them  to  market  at  all,  and  thus  what  was 
a  scarcity  became  a  famine.  The  starving  peo- 
ple then  became  furious ;  the  severities  formerly 
exercised  only  against  the  nobles,  the  clergy, 
and  the  royalists,  were  now  turned  against  the 
rich,  the  farmers  of  the  public  revenue,  the  trad- 
ers, who  were  accused  of  monopolizing  food  and 
holding  it  back  from  sale ;  and  these  were  sent  in 
crowds  to  the  guillotine.  But  all  the  terrors  of 
that  period,  which  was  emphatically  called  the 
'  Reign  of  Terror,'  were  not  enough  to  arrest  the 
depreciation."  l  The  attempt  to  conceal  the  de- 
preciation of  the  paper  currency  in  this  country 
by  making  it  command  a  certain  quantity  of 
gold,  is  much  more  reprehensible  than  the  attempt 
of  the  French  Jacobins  to  make  their  currency 
command  a  certain  quantity  of  bread  ;  it  probably 
will  not  be  followed  by  such  bloody  consequences 
as  those  which  marked  French  history,  but  it 
will  be  succeeded  by  very  unpleasant  results, 
equally  fatal  to  public  credit;  it  is  more  insidious, 

1  Bowen. 


70  THE   INSTRUMENT   OP   ASSOCIATION: 

and,  therefore,  more  dangerous.  The  French 
assignats  were  finally  made  exchangeable  into 
mandats,  at  the  rate  of  thirty  for  one  ;  but  the 
mandate  became  as  much  depreciated  as  the  assig~ 
nats  before  them,  and  by  a  spasmodic  effort  the 
currency  was  discarded.1  A  feeble  attempt  was 
made  by  the  Continental  Congress  to  take  up  the 
paper  money  by  issuing  notes  of  new  tenor,  at 
the  rate  of  forty  of  old  tenor  for  one  of  new 
tenor;  but  the  attempt  failed,  and  finally  the  bills 
ceased  to  circulate.2  It  is  probable  that  both  the 
assignats  and  Continental  bills  had  some  value  on 
the  basis  of  supply,  but  as  constituting  the  in- 
strument of  association  they  were  worthless,  for 
the  fluctuations  were  so  constant  and  violent,  that 
it  was  impossible  to  tell  one  moment  how  much 
bread  could  be  purchased  the  next  moment  with 
the  same  bill.3  Austria  retired  its  bills  of  credit 
that  were  issued  during  the  Napoleonic  wars,  by 
issuing  notes  of  redemption  at  the  rate  of  five 
of  old  to  one  of  new ;  but  the  old .  notes  were 
over-estimated  in  value,  so  that  the  notes  of  re- 
demption were,  in  fact,  depreciated  when  issued, 
and  they  had  to  be  taken  up  at  the  reduced  rate 

1  Bowen. 

2  Hildreth,  vol.  iii.  chap.  xlvi. 

3  Ante,  p.  46. 


ITS   ADJUSTMENT.  71 

of  forty  cents  on  the  dollar.1  It  is  probable, 
perhaps,  that  had  Austria  issued  its  new  notes 
of  redemption  at  the  rate  of  seven  or  eight  for 
one,  the  expedient  would  have  been  successful. 
In  a  measure  of  this  kind,  great  care  must  be 
taken  not  to  over-estimate  the  value  of  the  old 
currency  that  is  to  be  disposed  of,  otherwise  the 
expedient  will  not  be  successful ;  on  the  other 
hand,  if  it  be  under-valued,  no  harm  can  arise, 
because  coin  will  flow  into  and  fill  any  vacuum 
in  the  channels  of  circulation.  Russia,  after 
suffering  from  excessive  issues  of  paper  money 
that  were  made  during  the  Napoleonic  wars, 
fixed  their  value  in  1839,  by  making  them  con- 
vertible into  notes  of  the  Commercial  Bank  of 
St.  Petersburgh,  at  the  rate  of  four  to  one,2  and 
now  their  value  is  fixed  at  the  rate  of  three  and 
one  half  paper  roubles  for  one  silver  rouble. 

The  history  of  England,  during  the  bank  re- 
striction from  1797  to  i821,  is  interesting  and 
instructive.  I  shall  quote  from  one  of  the  best 
and  most  intelligent  authorities  on  the  subject.3 
"  The  year  1797  is>  however,  the  most  important 
epoch  in  the  recent  history  of  the  bank.  Owing 
partly  to  events  connected  with  the  war  in  which 

1  Hulburd,  Comptroller  of  the  Currency,  1867. 

2  Ibid.  3  McCulloch. 


72  THE  INSTRUMENT   OF   ASSOCIATION: 

we  were  then  engaged  —  to  loans  to  the  Emperor 
of  Germany  —  to  bills  drawn  on  the  treasury  at 
home  by  the  British  agents  abroad  —  and  partly 
and  chiefly,  perhaps,  to  the  advances  most  unwil- 
lingly made  by  the  bank  to  government,  which 
prevented  the  directors  from  having  sufficient 
control  over  their  issues  —  the  exchanges  be- 
came unfavorable  in  179-5,1  and  in  that  and  the 
following  year  large  sums  in  specie  were  drawn 
from  the  bank.  In  the  latter  end  of  1796  and 
beginning  of  1797?  considerable  apprehensions 
were  entertained  of  invasion,  and  rumors  were 
propagated  of  descents  having  been  actually 
made  on  the  coast.  In  consequence  of  the  fears 
that  were  thus  excited,  runs  were  made  on  the 
provincial  banks  in  different  parts  of  the  country; 
and  some  of  them  having  failed,  the  panic  be- 
came general,  and  extended  itself  to  London. 
Demands  for  cash  poured  in  upon  the  bank  from 
all  quarters ;  and  on  Saturday,  the  2.5th  of  Feb- 
ruary, 1797,  she  had  only  £1,272,000  of  cash 
and  bullion  in  her  coffers,  with  every  prospect 
of  a  violent  run  taking  place  on  the  following 
Monday.  In  this  emergency  an  order  in  council 
was  issued  on  Sunday,  the  26th,  prohibiting  the 

1  That  is  to  say,  the  currency  became  depreciated,  and  the 
exchange  turned  against  England. 


ITS   ADJUSTMENT.  73 

directors  from  paying"  their  notes  in  cash  until 
the  sense  of  Parliament  had  been  taken  on  the 
subject.  And  after  Parliament  met,  and  the 
measure  had  been  much  discussed,  it  was  agreed 
to  continue  the  restriction  till  six  months  after 
the  signature  of  a  definitive  treaty  of  peace." 
Such  were  the  events  preceding  the  restriction. 
The  issues  of  the  bank  were  so  moderate,  how- 
ever, that  during  the  first  three  years  they  some- 
times bore  a  small  premium  ;  but  in  the  latter 
part  of  1800,  they  fell  to  about  8  per  cent,  dis- 
count, as  compared  with  gold  ;  then  rose  again, 
soon  after,  nearly  to  par,  and  so  continued  till 
1809,  when,  owing  principally  to  increased  is- 
sues of  country  banks,  they  fell  to  \S\  per  cent, 
discount ;  then,  mostly  in  consequence  of  dimin- 
ished volume  of  country  bank  issues,  rose  to 
about  8  per  cent,  discount  ;  then,  owing  to  in- 
creased issues  both  of  Bank  of  England  and 
country  banks,  they  rapidly  depreciated  to  a  little 
more  than  25  per  cent,  discount  in  1 8 141 ;  so  that 
in  the  middle  of  the  year  1814-,  the  circulation 
of  the  Bank  of  England  was  £58,979-876,  and 
that  of  the  country  banks  £22,709,000,  or 
both  combined,  £51,688,876.  At  this  point  it 
will  be  useful  to  resume  the  narrative.  "But 
the  harvest  of  that  year  (1813)  being  unusually 


74  THE   INSTRUMENT   OF   ASSOCIATION: 

productive,  and  the  intercourse  with  the  Conti 
nent  being-  then  also  renewed,  prices,  influenced 
by  both  circumstances,  sustained  a  very  heavy 
fall  in  the  latter  part  of  1813,  and  the  beginning 
of  1814.1  And  this  fall  having  proved  ruinous 
to  a  considerable  number  of  farmers,  and  pro- 
duced a  general  want  of  confidence,  such  a 
destruction  of  provincial  paper  took  place  as  has 
rarely  been  paralleled.  In  1814,  1815,  and 
1816,  no  fewer  than  240  country  banks  stopped 
payment ;  and  eighty-nine  commissions  of  bank- 
ruptcy were  issued  against  these  establishments, 
being  at  the  rate  of  one  commission  against  every 
ten  and  a  half  of  the  total  number  of  banks  ex- 
isting in  1813.  The  great  reduction  that  had 
been  thus  suddenly  and  violently  brought  about 
in  the  quantity  of  country  bank  paper,  by  ex- 
tending the  field  for  the  Bank  of  England  paper, 
raised  its  value,  in  1817,  nearly  to  a  par  with 
gold.  The  return  to  cash  payments  being  thus 
facilitated,  it  was  fixed  in  1819,  by  the  act  59 
Geo.  III.  c.  78,  commonly  called  Mr.  Peel's  Act, 

1  Mr.  Carey  says  that  the  revulsion  in  England  was  started 
by  the  Bank  of  England,  but  I  find  no  evidence  that  such 
was  the  fact.  The  circulation  and  deposits  of  the  bank  were 
nearly  eiglit  millions  sterling  greater  in  August,  1814,  than  at 
the  same  period  in  the  previous  year. 


ITS   ADJUSTMENT.  75 

that  they  should  take  place  in  1823."  l  In  point 
of  fact,  specie  payments  were  resumed  May  1, 
1821,  and  in  that  year  the  circulation  of  the 
Bank  of  England  was  £20,327,740,  and  that  of 
the  country  banks,  .£8,414,281,  or  both  com- 
bined, £28,741,921.  Judging  from  history,  the 
consequences  of  the  wholesale  destruction  of 
country  bank  paper,  and  the  failure  of  these 
banks,  was  well-nigh  appalling.  And  the  final 
reestablishment  of  the  standard  that  existed  in 
1797>  was  one  of  the  "  most  remarkable  meas- 
ures of  confiscation  to  be  found  in  the  annals 
of  legislation."2  The  Comptroller  of  the  Cur- 
rency takes  a  very  superficial  view  therefore,  in 
saying,  —  "  With  a  sturdy  good  sense,  however, 
that  did  credit  to  their  national  character,  the 
English  people  set  themselves  to  work  to  retrace 
their  steps,  and  after  years  of  struggling  and 
suffering,  the  Bank  of  England  again  resumed 
specie  payments,  but  not  until  the  paper  cur- 
rency had  been  reduced  by  the  withdrawal  of 
£43,467,978-"  3    The  historical  fact  is,  that  the 

1  MeCulloch.  2  Carey. 

3  Hulburd,  186  7.  "  How  far  this  depreciation  was  the  cause 
of  speculation  and  over-trading,  it  is  difficult  to  prove.  It  is, 
however,  agreed,  that  there  was  a  very  considerable  rise  in 
prices  from  1812  to  1814,  and  that  country  bankers  undertook 
to  do  more  business  than  their  capital  justified  on  security  that 


76  THE   INSTRUMENT   OP   ASSOCIATION: 

combined  circulation  of  the  Bank  of  England 
and  the  country  banks  never  reached  fifty-two 
millions  sterling-  at  any  time  during  the  restric- 
tion, and  the  decrease  in  the  combined  circula- 
tion, when  resumption  took  place,  was  less  than 
twenty-three  millions  sterling.  It  seems  almost 
travesty,  therefore,  to  characterize  the  indiscrimi- 
nate robbery  as  something  creditable  to  the  good 
sense  of  the  British  people.  There  are  two 
points  that  force  themselves  on  our  attention,  in 
reviewing  the  experience  of  England.  First, 
it  is  obvious  that  nothing  of  the  kind  can  occur 
here,  since  the  government  is  responsible  for  the 
whole  circulation.  Second,  if  a  reduction  of 
forty-five  per  cent,  of  the  circulation  caused  such 
destruction  of  property  in  England,1  what  would 

was  of  too  fluctuating  a  value  to  be  safe.  The  consequence 
was,  that  when,  in  1814  and  1815,  a  reaction  took  place,  first  of 
all  in  the  price  of  corn,  and  then  in  that  of  almost  every  staple 
article  of  trade,  there  ensued  a  crash  among  the  private  bank- 
ers, accompanied  by  a  collapse  of  their  credit  as  banks  of 
issue,  which  at  once  purged  the  circulation  of  a  vast  amount 
of  paper,  and  substituted  that  of  the  Bank  of  England  in  its 
place.  But  the  relief  thus  given  to  the  currency  showed  it- 
self toward  the  close  of  1816  by  the  restoration  of  the  Bank 
paper  to  a  par  with  gold."  —  British  Finance  in  1816  :  N.  A. 
Review,  April,  1867,  Art.  II.  pp.  376,  377. 

1  The  mischief  in  England  was  all  done  in  1814,  1815,  and 
1816,  by  a  reduction  of  less  than  twenty  per  cent,  of  the  cir- 
culation. The  revulsion  in  1857,  in  the  United  States,  effected 
a  reduction  of  only  twenty-five  per  cent,  in  the  circulation. 


ITS   ADJUSTMENT.  77 

be  the  probable  effect  of  the  reduction  of  sixty- 
five  per  cent,  of  the  circulation  in  this  country, 
even  if  it  were  possible  %  It  would  be  of  no 
avail  to  attempt  to  distribute  this  reduction  over 
a  series  of  years.  If  done  at  all,  it  must  be 
done  at  one  fell  swoop,  without  regard  to  the 
political  consequences,  or  the  inconceivable  suf- 
fering's of  the  people. 

The  instrument  of  association,  as  stated  else- 
where,1 is  substantially  composed  of  paper  money, 
about  equally  divided  between  national  bank  cir- 
culation and  legal  tender  notes.  It  is  necessary 
to  examine  the  national  bank  system  in  order  to 
arrive  at  the  object  of  our  inquiry,  —  the  adjust- 
ment of  the  instrument  of  association.  It  is 
probable  that  the  abolishment  of  the  old  state 
banks  of  issue,  and  the  establishment  of  the  na- 
tional banks  under  government  auspices  and  con- 
trol, in  giving  the  government  exclusive  control 
of  the  channels  of  circulation,  was  an  indispen- 
sable measure  of  safety,  both  for  the  Union  and 
the  people.  It  was  necessary  to  the  success  of 
the  government,  that  it  should  obtain  and  hold 
possession  of  the  channels  of  circulation,  other- 
wise the  country  would  have  been  deluged  with 
irredeemable  paper,  and  the  financial  ruin  of  the 

1  Ante,  p.  40. 


78  THE   INSTRUMENT   OP    ASSOCIATION: 

nation  completed  at  a  very  early  stage  of  the 
war.  That  the  state  banks  of  issue  could  have 
been  abolished,  without  something  being  offered 
in  lieu  thereof,  may  well  be  doubted,  for  even 
the  establishment  of  the  national  banks  met 
with  a  most  determined  opposition,  notwithstand- 
ing the  pecuniary  advantages  of  the  system.  As 
a  war  measure  at  a  critical  period,  the  super- 
sedure  of  the  state  banks  of  issue,  by  national 
banks  of  issue  whose  circulation  was  controlled 
and  limited  by  the  central  power,  must  be  re- 
garded as  an  act  of  signal,  and,  probably,  of 
saving  advantage.  There  is  no  elasticity  to  this 
national  bank  circulation,  and  considering  the 
inutility  of  its  reserves,1  and  the  fact  of  its  in- 
convertibility into  anything  but  bills  of  credit,  it 
seems  to  be  a  hybrid,  produced  from  interest 
bearing  and  non-interest  bearing  certificates  of 
government  indebtedness,  in  the  composition  of 
which  the  interest  bearing  element  largely  pre- 
dominates. Stripped  of  the  cobwebs  that  have 
been  sedulously  thrown  aboiyj  it,2  this  national 
bank  circulation  takes  from  the  producing  classes 
every    year,    about    $15,000,000    net,3    and    is 

1  Ante,  p.  34. 

2  The  Comptroller  showed  that  the  banks  actually  were  the 
losers  of  five  and  one  half  millions.     1867. 

3  Interest  on  circulation,  less  tax,  and  interest  on  plain  legal 


ITS    ADJUSTMENT.  79 

therefore  a  tax  to  that  extent.  But  perhaps  the 
worst  feature  of  it  is,  that,  instead  of  being"  un- 
der control  of  Congress,  Congress  seems  to  be 
controlled  by  the  national  banks.  In  the  present 
condition  of  the  country,  therefore,  and  in  view 
of  the  pressure  of  taxation  upon  all  branches  of 
industry,  it  seems  to  be  a  criminal  act  to  sur- 
render the  channels  of  circulation,  or  any  portion 
thereof,  to  any  banks  of  issue,  whether  organized 
under  state  or  federal  laws.  If  the  privilege  of 
circulating  notes  were  not  immensely  profitable, 
it  would  not  be  contested ;  being  profitable,  the 
profit  should  enure  to  the  benefit  of  the  tax- 
payers.1 "  If  paper  currency  is  to  be  substituted 
for  metallic  currency,  the  profits  of  the  substitu- 
tion ought  to  accrue  for  the  benefit  of  those  who 
make  it  —  of  those  who  are  willing  to  give  up 
coin,  and  accept  paper  with  all  its  attendant 
risks.  The  act  of  substitution  is  the  act  of  the 
community  at  large  ;  to  be  the  agents  in  this  act 
is  a  usurped  function  of  the  banks,  in  no  wise 

tender  reserve.  As  banks  of  deposit,  the  national  banks  are 
properly  taxed,  but  as  banks  of  issue,  the  privilege  of  'circu- 
lating notes  is  worth  about  $15,000,000  net,  which  comes  out 
of  the  people. 

1  The  saving  effected  by  abolishing  the  national  bank  circu- 
lation and  substituting  legal  tender  notes  in  place  thereof,  will 
be  equal  to  a  reduction  of  one  per  cent,  in  the  income  tax. 


80  THE   INSTRUMENT    OP   ASSOCIATION  : 

connected  with  their  other  and  proper  offices.     It 
belongs  to  the  state,  and  ought  to  be  exercised 
for  the  benefit  of  the  tax-payers  —  that  is,  of  the 
persons  who,  by  giving  up  coin  and  accepting 
paper,  make  a  saving  of  the  precious  metals,  and 
ought  to  profit  by  that  saving."  l     In  order  to 
adjust  the  present  instrument  of  association  to 
its  proper  value  and  efficiency,  it  will  be  impor- 
tant to  displace  the  national  bank-notes,  and  sub- 
stitute legal  tender  notes  in  their  place.2     This 
done,  the  repeal  of  the  legal  tender  act  should  fol- 
low, with  a  provision  that  all  existing  debts,  public 
and  private,  that  were  contracted  in  paper  money, 
shall  be  paid  in   paper  money,  unless   there  is 
some  existing  law  or  agreement  to  the  contrary. 
Lastly,  the  government  shall  issue  notes  of  re- 
demption, or  specie   notes,  payable  in  specie  on 
demand,  into  which  the    legal  tenders  shall  be 
converted  at  the  rate  of   three  dollars  of  legal 
tender  for  one  dollar  of    specie  notes,3  and  the 
legal   tenders  shall    be  thereafter  cancelled  and 

1  Mill  and  Bowen.     The  language  is  Bowen's. 

2  TJiis  will  release  the  legal  tender  reserve  of  the  banks, 
and  so  add  to  the  circulation  and  deposits,  probably  bringing 
the  nominal  value  of  the  instrument  of  association  up  above 
$1,500,000,000,  and  it  is  this  fact  which  necessitates  great 
care  not  to  overvalue  the  legal  tenders. 

3  Existing  debts  due  in  paper  money  to  be  cancelled  by 
specie  notes  at  the  rate  of  one  for  three  of  legal  tenders. 


ITS   ADJUSTMENT.  81 

destroyed.  This  is  the  only  method  of  disposing 
of  our  paper  money,  without  injury  to  the 
people,  or  danger  to  public  credit.  There  are,  I 
may  safely  say,  but  two  ways  of  disposing  of  an 
excessive  issue  of  bills  of  credit.  One  method 
is  that  already  suggested.  The  other  method, 
is  to  resort  to  continuous  issues,  till  the  whole 
fabric  explodes,  leaving  a  misgoverned  and 
ruined  people  to  mourn  over  the  imbecility  of 
their  chosen  and  trusted  servants.  History  may 
be  searched  in  vain  for  any  exception  to  the  law 
here  laid  down.  It  is  useless  to  argue  that  it 
should  not  be  so,  or  that  it  need  not  be  so.  His- 
tory teaches  that  it  always  has  been  so,  and  we 
may  be  assured  that  it  always  will  be  so. 


82  THE   INSTRUMENT   OP    ASSOCIATION 


V. 

THE  EFFECT  OF  THE  ADJUSTMENT. 

nnHE  instant  effect  of  the  adjustment  of  the 
instrument  of  association  to  its  normal 
weight  of  about  2.013,888  pounds  troy,  of 
pure  gold,  or  about  2,239,583  pounds  troy,  of 
standard  or  coin  gold,  or  about  $500,000,000 
in  coin,  will  be  to  restore  prosperity  to  all 
branches  of  industry  throughout  every  section  of 
the  country ;  and  if  this  adjustment  be  perma- 
nent, that  is  to  say,  if,  having  fixed  the  value  of 
our  paper  money  at  three  dollars  for  one  dollar 
of  coin,  there  be  no  further  issues  of  paper 
money,  either  by  banks  or  by  government,  the 
industry  of  the  country  will  know  no  relaxation 
from  its  prosperous  condition.1  The  average 
wages  of  labor,  rent,  and  profits,  will  be  restored 
to  their  most  prosperous  ante-war  basis,  less  the 
difference  between  the  present  and  ante-war  taxa- 

1 1  assume  that  there  will  be  no  tariff  legislation  hostile  to 
industry. 


EFFECT   OF   THE   ADJUSTMENT.  83 

tion.1  Not  only  that,  but  the  gold  value  of  taxa- 
tion will  be  reduced,  even  if  the  public  securities 
remain  untaxed  at  their  present  rate  of  interest, 
because  the  gold  value  of  the  expenses  of  the 
federal  and  the  municipal  governments  will 
be  reduced  very  largely.  It  may  be  useful  to 
repeat  the  principle  upon  which  the  instrument 
of  association  is  adjusted.  (1.)  The  average 
prices  of  commodities  are  equalized  throughout 
the  commercial  world  by  the  operations  of 
international  trade.  (2.)  The  gold  weight,  or 
money  value  of  the  instrument  of  association, 
or  the  money  value  needed  to  circulate  money 
values,  bears  a  fixed  ratio  to  the  money  values 
circulated.  (3.)  Therefore,  if  the  average  prices 
or  money  values  of  commodities  within  any  na- 
tion are  regulated  by  the  natural  laws  of  trade, 
then  the  money  value  of  the  instrument  of  asso- 
ciation is  regulated  by  the  natural  laws  of  trade. 
And  when  the  natural  laws  of  trade  are  no 
longer  obstructed  by  empirical  devices,  the  coun- 
try will  derive  the  utmost  benefit  from  its  un- 
bounded natural  resources.  I  have  said  that  the 
prosperity  of  the  country  would  know  no  relaxa- 
tion. The  reason  is,  that  when  the  instrument 
of  association  is  adjusted  to  its  normal  value, 

1  Ante,  p.  61. 


84  THE   INSTRUMENT   OF   ASSOCIATION  : 

and  further  issues  of  paper  are  prevented,  it  is 
obvious  that  any  addition  to  the  instrument  of 
association  will  require  value ;  and  value  is  the 
product  of  labor  rather  than  the  product  of  leg- 
islation, and  will  not  remain  where  it  has  become 
superfluous  or  depreciated,  but  will  go  where 
it  will  command  the  most  value  in  exchange. 
Therefore,  if  the  currency  be  a  currency  of  val- 
ue, it  will  remain  at  or  near  the  minimum ;  and 
since  it  is  a  law  that  the  smaller  the  value  of  the 
instrument  of  association,  the  greater  the  pros- 
perity of  the  nation,1  it  follows  that  with  a  cur- 
rency of  value,  the  prosperity  of  the  nation  will 
be  uniform  and  assured.  The  instrument  of  as- 
sociation in  this  country  has  never  been  com- 
posed of  self-adjusting  material,  nor  has  there 
been  any  effectual  control  over  its  nominal  pa- 
per value  ;  consequently,  the  prosperity  of  the 
country  has  been  subjected  to  constant  and  un- 
expected vicissitudes.  People  have  become  afflu- 
ent from  no  merit  or  sagacity  of  their  own,  and 
others  have  become  impoverished  through  no 
fault  of  their  own.  It  is  the  inevitable  effect  of 
any  currency  which  is  not  a  currency  of  value, 
that  "  it  enriches  without  merit,  and  ruins  without 

1  Ante,  p.  19. 


EFFECT   OF    ITS   ADJUSTMENT.  85 

blame."  1  The  currency  per  capita  of  the  coun- 
try for  twenty-five  years  previous  to  the  war, 
varied  from  $6iVo  to  $17iV<r.  From  1849  to 
1860,  it  varied  from  $9rVo  to  $15A°<j,2  conse- 
quently there  has  been  no  uniform  prosperity,  no 
social  concord,  no  domestic  tranquillity.3  It  is 
the  vulgar  opinion  that  a  rise  in  the  premium  on 
gold  will  cause  a  corresponding  rise  in  the  cur- 
rency prices  of  all  domestic  commodities.  I  say, 
such  is  the  vulgar  opinion,  because  it  is  the 
opinion  of  the  uneducated  and  unreflecting  mind. 
It  is  also  the  vulgar  opinion  that  high  currency 
prices  are  injurious,  whereas  there  can  hardly  be 
anything  more  remote  from  the  truth.  The  pa- 
per money  prices  of  domestic  commodities  are 
not  regulated  by  the  international  laws  of  trade, 
but  by  the  quantity  of  paper  money  in  use,  and 
by  the  condition  of  the  societary  circulation. 
The  law  of  supply  and  demand  regulates  price, 
but  the  elements  of  supply  consist  of  the  supply 
of  commodities  and  the  supply  of  paper  money 
in  which  the  price  is  expressed.  It  should  be 
remembered  that  our  paper  money  is  of  forced 
circulation,  that  it  is  the  floating  debt  of  the 
government  bearing  no  interest,  and  payable  at 

1  Walker.  2  Ante,  p.  58. 

3  There  has  been  a  constant  tariff  war. 


86  THE   INSTRUMENT   OP   ASSOCIATION  : 

some  indefinite  time  in  the  future,  consequently, 
be  its  quantity  more  or  less,  it  will  all  be  used 
to  circulate  whatever  commodities  are  circulated  ; 
and  no  more  than  is  in  circulation  can  be  used 
to  circulate  whatever  commodities  are  circulated ; 
therefore,  a  rise  in  the  currency  price  of  gold 
will  have  no  natural  or  great  effect  on  the  aver- 
age price  of  domestic  commodities.  There  will 
be  a  wholesome  rise  of  prices,  and  this  is  what 
the  people  need.  They  need  high  currency 
prices,  and  low  currency  taxes.  But  unless  the 
supply  of  currency  be  increased,  there  can  be  no 
great  rise  in  currency  prices.  Whatever  rise 
takes  place,  will  be  due  to  increased  momentum 
of  the  currency,  to  increased  activity  of  the  so- 
cietary  circulation,  and  consequently,  the  higher 
currency  prices  rise,  the  more  prosperous  will 
be  the  people,  provided  such  rise  comes  from  an 
increased  demand  for  commodities,  and  not  from 
an  increased  supply  of  currency.  Such  a  rise 
in  currency  prices  will  be  evidence  of  increased 
production  and  consumption,  and  interchange  of 
domestic  commodities,  creating  an  increased  de- 
mand for  the  domestic  currency ;  and  conse- 
quently, as  the  demand  for  domestic  currency 
increases,  the  exchangeable  value  of  this  domestic 
currency  is  prevented  from  going  below  a  certain 


EFFECT    OF   THE   ADJUSTMENT.  87 

point,  or,  in  other  words,  currency  prices  cannot 
advance  beyond  a  certain  point,  if  the  supply  of 
currency  be  fixed.  The  important  point  to  be 
gained  is  the  adjustment  of  commercial  relations 
with  the  external  world;  and  the  adjustment  of 
the  instrument  of  association,  as  measured  by  the 
common  currency  of  the  world,  will  adjust  those 
relations.  The  smaller  the  value  or  gold  weight 
of  the  instrument  of  association,  the  more  we  shall 
sell  and  the  less  we  shall  buy  of  foreign  nations. 
The  greater  the  value  or  gold  weight  of  the  in- 
strument of  association,  the  more  we  shall  buy 
and  the  less  we  shall  sell  to  foreign  nations.  If 
the  gold  weight  of  the  instrument  of  association 
exceed  $500,000,000  coin,  we  shall  buy  from 
foreign  nations  more  than  we  can  pay  for,  and 
shall  give  to  them  evidences  of  debt  (bonds), 
bearing  interest,  instead  of  value,  in  exchange 
for  value;  and  so  long  as  the  value  or  gold 
weight  remains  in  excess  of  §>l3i%\ per  capita, 
the  process  will  go  on  ad  infinitum.  The  aver- 
age price  of  domestic  commodities  cannot  rise 
materially,  in  consequence  of  a  rise  in  the  price 
of  gold.  There  are  some  domestic  commodities, 
however,  that  will  be  affected  more  than  others, 
especially  cotton.  At,  or  above  the  cost  of 
production,  the  price  of  cotton  is  regulated   by 


88  THE   INSTRUMENT   OP    ASSOCIATION  : 

the  price  in  England,  the  chief  consuming-  coun- 
try. As  an  axiom,  it  may  be  laid  down  that  at 
or  above  the  cost  of  production,  the  price  of  any 
staple  commodity  is  regulated  by  the  market  of 
the  chief  consuming  country ;  and  that  at  or  be- 
low the  cost  of  production,  the  price  of  any  sta- 
ple commodity  is  regulated  by  the  market  of 
the  chief  producing  country.  In  other  words, 
the  demand  is  regulated  by  the  chief  consuming 
country,  and  the  supply,  by  the  chief  producing 
country,  and  supply  and  demand  govern  price. 
Consequently,  the  adjustment  of  the  instrument 
of  association  at  the  rate  of  three  for  one,  will 
enable  the  cotton  producers  of  this  country  to 
lay  down  their  product  in  Liverpool  at  five  pence 
sterling  per  pound,  plus  freight  and  charges 
(which  is  about  the  ante-war  price),  at  a  very 
handsome  profit  in  currency  here.  The  currency 
cost  of  production  will  increase  somewhat,  but 
not  materially.  Products  of  the  soil  will  be  af- 
fected less  than  anything  else  in  the  cost  of  pro- 
duction. Thus,  our  cotton  producers  will  be 
enabled  to  regain  their  monopoly.  I  do  not  say 
that  it  is  good  policy  to  exhaust  our  soil  in  sup- 
plying Europe  with  food  and  raw  materials;  but 
in  the  present  condition  of  the  country,  political, 
industrial,  and  financial,  it  will  be  advantageous 


EFFECT   OF   THE   ADJUSTMENT.  89 

for  a  few  years.1  Other  commodities,  such  as 
tobacco,  and  wheat,  and  corn,  will  be  affected,  as 
well  as  the  wages  of  labor,  but  chiefly  in  conse- 
quence of  the  increased  rapidity  of  the  societary 
circulation,  and  to  a  very  limited  extent  compared 
with  cotton.  The  large  advance  in  the  currency 
price  of  cotton,  as  well  as  the  advance  in  the 
currency  price  of  foreign  staples,  such  as  tea, 
coffee,  and  sugar,  will  absorb  so  much  currency 
in  the  circulation  of  those  commodities,  that  the 
prices  of  other  commodities  cannot  possibly  ad- 
vance materially.  As  a  rule,  it  may  be  said  that 
the  average  price  of  domestic  commodities  can- 
not possibly  advance  pari  passu  with  the  price 
of  gold,  unless  the  currency  be  increased,  nor 
can  they  decline  pari  passu  with  the  premium  on 
gold,  unless  the  currency  be  decreased.  The 
wasres  of  mechanical  labor  are,  as  a  rule,  about 
one  hundred  and  fifty  per  cent,  higher  than  be- 
fore the  war,  while  the  price  of  gold  is  only  forty 
per  cent,  higher.  The  volume  of  currency,  per 
capita,  is  about  two  hundred  per  cent,  greater 
than  before  the  war,  and  if  the  societary  circula- 
tion were  rapid,  the  average   price  of  commodi- 

1  If  the  instrument  of  association  be  adjusted,  these  things 
•will  regulate  themselves.  The  economy  of  labor  will  become 
perfected. 


90  THE   INSTRUMENT   OP   ASSOCIATION: 

ties  and  the  average  wages  of  labor  would  be  two 
hundred  per  cent,  higher  than  before  the  war, 
without  regard  to  'the  premium  on  gold.  The 
average  prices  of  commodities  and  the  average 
wages  of  labor  cannot  advance  more  than  two 
hundred  per  cent,  above  ante-war  prices,  unless 
the  per  capita  volume  of  the  currency  be  in- 
creased more  than  two  hundred  per  cent,  above 
the  ante-war  volume.  Such  commodities  as  are 
chiefly  exported,  will  advance  the  most  in  cur- 
rency price,  as  the  price  of  gold  advances,  and 
such  commodities  as  are  not  exported  at  all,  will 
advance  the  least.  Rent  will  not  be  so  much 
affected,  nor  will  the  price  of  land.  The  eternal 
law  of  supply  and  demand  governs  price.  If 
the  currency  value  of  the  instrument  of  associa- 
tion be  $1,500,000,000,  so  will  be  the  average 
currency  prices,  if  the  societary  circulation  be 
healthy.  If  the  gold  value,  or  weight,  of  the 
instrument  of  association  be  $500,000,000,  so 
will  be  the  gold  prices,  if  the  societary  circu- 
lation be  healthy.  Hence,  the  lower  the  gold 
prices  of  commodities,  the  greater  the  exports 
and  the  smaller  the  imports ;  and  the  higher  the 
gold  prices  of  commodities,  the  greater  the  im- 
ports and  the  smaller  the  exports.  Nothing  can 
be  more  favorable  to  the  industry  of  the  country, 


EFFECT   OF   THE   ADJUSTMENT.  91 

and  the  credit  of  the  government,  than  to  per- 
manently contract  the  gold  value  of  the  in- 
strument of  association  to  its  minimum.  Yet, 
strange  as  it  may  seem,  the  whole  power  of 
legislation,  and  the  whole  energy  of  the  Treasury 
Department  has  heen  exerted  to  keep  down 
the  premium  on  gold,  to  expand  the  gold  value 
of  the  instrument  of  association,  to  force  ex- 
cessive importation,  to  restrict  exportation,  to 
destroy  the  industry  of  the  country,  to  imperil 
the  credit  of  the  government,  to  increase  the 
burden  of  taxation,  and  to  expel  by  hundreds 
of  millions  the  interest  bearing  securities  of  the 
government.  It  cannot  be  denied  that  this  em- 
pirical interference  with  the  price  of  gold  has 
been  countenanced  by  public  opinion,  but  the  va- 
garies of  public  opinion  on  the  subject  of  money, 
furnish  a  curious  commentary  on  the  philosophy 
of  the  human  mind.1  Precisely  the  opposite  was 
the  course  that  should  have  been  pursued ;  the 
price  of  gold  should  have  been  maintained  at  its 
maximum  point,  but  so  infatuated  is  the  public 
mind  with  the  idea  of  the  immense  advantage  to 
be  derived  from  a  low  premium  on  gold,  that 
those  who  entertain  different  views  are  regarded 
as  fools  ;  while  the  science  of  political  economy 
seems  to  be  held  in  unmeasured  contempt.     Nor 

1  Bowen. 


92  THE   INSTRUMENT   OF   ASSOCIATION  : 

will  the  currency  prices  of  foreign  commodities 
advance  pari  passu  with  the  premium  on  gold. 
On  the  contrary,  the  gold  prices  of  such  foreign 
commodities  as  can  be  produced  in  our  own 
country,  especially  manufactured  articles,  will  be 
forced  below  cost  of  production,  and  cease  to  be 
imported,  and  the  nation  will  become  a  large  ex- 
porter of  manufactures.  The  currency  prices  of 
articles  of  unnecessary  and  luxurious  consump- 
tion will  advance  sufficiently  high  to  check 
consumption  and  importation  thereof,  to  a  very 
considerable  extent,  thus  exerting  a  salutary 
influence  on  the  habits  of  the  people,  which  have 
become  corrupted  by  excessive  exoticism.  Cof- 
fee, tea,  and  sugar  will,  perhaps,  advance  in  cur- 
rency price  more  than  any  other  commodities ; 
but  their  gold  prices  will  remain  at  little  more 
than  the  cost  of  production,  for  the  producing 
countries,  whence  these  commodities  are  im- 
ported, will  be  affected  somewhat  by  the  change 
in  the  instrument  of  association.  Absenteeism 
will  no  longer  cause  such  a  heavy  drain  on  our 
resources,  for  absentees  will  find  they  can  obtain 
more  for  their  money  at  home  than  abroad,  and 
will  accordingly  return.  Smuggling  will  be 
prevented  to  a  great  extent,  for  most  commodi- 
ties  will   be    produced    cheaper    at    home    than 


EFFECT   OF   THE   ADJUSTMENT.  93 

abroad,  and  therefore,  smuggling  will  not  pay. 
The  art  of  ship-building  will  return  from  its 
voluntary  exile,  and  the  ringing  blow  of  the  axe 
will  again  reverberate  throughout  the  land. 
American  ships  will  no  longer  make  their  repairs 
and  procure  their  outfits  abroad  ;  on  the  contrary, 
foreign  ships  will,  to  a  great  extent,  make  re- 
pairs and  procure  outfits  in  the  United  States ; 
and  if  we  do  not  regain  our  share  of  the  carry- 
ing trade  immediately,  we  shall  be  in  a  fair  way 
of  doing  so  very  soon.  Our  public  funds  will  no 
longer  take  wings  and  fly  unto  the  uttermost 
parts  of  the  earth,  —  sad  evidences  of  maladmin- 
istration, and  of  the  abuse  and  neglect  of  the 
abundant  resources  vouchsafed  to  us  by  a  benefi- 
cent God.  The  burden  of  taxation  will  no 
longer  hang  like  a  millstone  on  the  necks  of  the 
people,  eating  up  their  capital,  and  sinking  them 
deeper  and  deeper  into  the  slough  of  bankruptcy. 
The  present  weight  of  the  instrument  of  associa- 
tion, with  gold  at  $1.4<0,  is  twice  what  it  will  be 
when  it  is  adjusted :  and  it  is  this  great  weight 
which  is  breaking  the  people  down ;  this  is  the 
tax  that  must  be  removed,  or  society  will  fall  back 
on  its  reserved  rights  —  its  natural  rights  that 
never  lapse,1  and  repudiation  of  the  public  debt 

1  Gibbons. 


94  THE   INSTRUMENT   OP   ASSOCIATION: 

will  follow  from  necessity.  Let  not  this  danger 
be  regarded  as  improbable,  for  it  is  now  impend- 
ing ;  and  if  the  current  of  events  be  not  reversed, 
it  will  surely  come,  and  before  a  very  long  time 
shall  have  passed.  If  repudiation  does  come,  it 
will  not  be  the  fault  of  the  people,  who  have 
borne  taxation  as  no  other  people  ever  did  be- 
fore ;  but  it  will  be  the  fault  of  those  in  the 
executive  and  legislative  departments  of  the  gov- 
ernment, who,  intent  only  upon  power  and 
gorged  with  the  spoils  of  office,  have  manifested 
neither  the  disposition  nor  capacity  to  manage 
the  affairs  of  state.  Finallv,  the  effect  of  this 
adjustment  upon  the  public  credit,  which  is  now 
tottering,  will  be  such  as  to  render  it  secure  be- 
yond peradventure. 


A   PERFECT   INSTRUMENT.  95 


VI. 

A    PERFECT    INSTRUMENT. 

OEFORE  discussing  the  essentials  of  a  perfect 
instrument  of  association,  it  will  be  useful  to 
examine  into  the  character  of  that  which  was  in 
use  prior  to  the  war.  There  are  three  sorts  of 
currencies,  from  which  it  has  been  attempted,  at 
various  times,  to  form  the  instrument  of  associa- 
tion, here  or  in  other  countries.  First,  a  pure 
currency,  whose  deposits  are  debt,  and  whose 
circulating  moiety  consists  entirely  of  coin  or 
coin  certificates.  Second,  a  mixed  currency, 
whose  deposits  are  debt,  and  whose  circulating 
moiety  is  partly  of  coin,  but  mostly  of  prom- 
issory notes,  supposed  to  be  convertible  into 
coin  at  the  will-  and  pleasure  of  the  holder 
at  all  times.  Third,  an  unmixed  paper  cur- 
rency, whose  deposits  are  debt,  and  whose  cir- 
culating moiety  is  entirely  of  promissory  notes 
inconvertible.1       An    instrument    of   association 

1  In  a  pure  currency,  the  measure  of  value  is  comparatively 
fixed;  in  a  mixed  currency,  it  is  constantly  changing;  in  an 
unmixed  paper  currency,  it  is  entirely  abandoned. 


96  THE   INSTRUMENT   OP    ASSOCIATION  : 

formed  from  a  pure  currency,  is  an  inestimable 
blessing,  hitherto  unknown  to  this  country.  An 
instrument  of  association  formed  from  a  mixed 
currency,  is  a  chimera,  a  curse,  an  instrument  of 
dissociation  rather,  a  device  of  Satan  to  enthrone 
capital  and  enslave  labor,  and,  insensibly  and  by 
slow  degrees,  to  establish  a  moneyed  aristocracy, 
disguised  (if  the  disguise  be  not  discarded  in 
the  course  of  time)  under  the  form  of  democ- 
racy. An  instrument  of  association  formed  from 
inconvertible  paper,  is  a  machine  for  creating 
civil  war ;  for  destroying  both  capital  and  labor, 
and  for  perpetuating  military  despotism  as  the 
alternative  of  anarchy.  Before  the  war,  the  in- 
strument of  association  was  composed  of  a  mixed 
curreucy — of  circulating  notes  pretending  to  be 
convertible  into  specie  on  demand,  and  whose 
ultimate  redemption  was  secured  (I)1  by  state 
stocks  bearing  interest ;  and  also  of  deposits, 
or  inscribed  credits  on  the  books  of  the  banks, 
which  also  pretended  to  be  payable  in  coin  on 
demand.  These  banks  were  banks  of  discount 
and  deposit,  and  of  issue,  the  last  being  an 
usurped  function,2  in  order  to  perform  which,  the 

1  When  the  rebellion  broke  out,  the  circulation  of  those 
Western  banks  that  was  based  on  Southern  stocks,  became 
worthless.  There  can  hardly  be  anything  more  absurd  than 
to  base  a  circulation  upon  debt.     Debt  upon  debt. 

2  Bowen. 


A   PERFECT   INSTRUMENT.  97 

banks  pretended  to  keep  sufficient  coin  on  hand 
to  be  in  a  position  to  pay  their  bill-holders  on 
demand.  They  also  pretended  to  retain  coin 
sufficient  to  meet  all  demand  liabilities  that  were 
likely  to  be  called  for,  but  they  never  did ;  the 
whole  system,  from  first  to  last,  was  a  fraud.1 
An  inconvertible  paper  currency  does  not  profess 
anything,  but  this  system  professed  everything ; 
it  professed  to  be  as  good  as  gold,  and  cheaper : 
it  was  neither ;  it  was  much  more  expensive. 
The  instrument  of  association  thus  formed  was 
never  of  uniform  weight  or  measure.2  Society 
was  pretty  much  in  the  same  condition  as  if  a 
bushel  of  wheat  were  the  standard  of  value,  and 
as  if  the  bushel  measure  were  sometimes  shrunk 
to  a  half  bushel,  and  sometimes  expanded  to  a 
bushel  and  a  half.  Men  incurring  a  debt  to-day 
on  a  basis  of  thirty  pounds  to  a  bushel,  might, 
through  no  fault  of  theirs,  be  suddenly  called 
upon  to  pay  at  the  rate  of  ninety  pounds  to  the 
bushel.3  The  banks  expanded  this  instrument 
like  a  balloon,  and  then,  with  great  suddenness, 
pricked  it,  so  that  it  would  instantly  collapse, 
spreading  ruin  all   about.     Industry  sometimes 

i  Walker.  2  Ante,  pp.  58,  85. 

3  In  1837  the  per   capita  was  $17.60,  and  in   1843  it  was 
$6.18;  in  1857  it  was  $15.60,  and  in  1858  it  was  $11.56. 
7 


98  THE   INSTRUMENT   OP   ASSOCIATION: 

would  be  rushing  at  fever  heat,  and  at  others,  it 
would  be  paralyzed,  as  if  under  the  cold  hand 
of  death.  I  do  not  charge  all  this  upon  individ- 
uals or  corporations,1  but  I  charge  it  upon  the 
system.  The  fatal  defect  of  the  system  is  that 
the  entire  active  currency  2  is  debt,  and  is  not 
self-adjusting-,  because  debt  bearing  no  interest 
cannot  be  exported.  The  process  of  inflation  is 
initiated  by  an  increase  of  loans  and  discounts, 
and  an  increase  of  circulating  notes ;  prices 
begin  to  rise ;  speculators  begin  without  capi- 
tal, and  buy  merchandise,  giving  promissory 
notes  (on  time)  in  payment ;  the  payee  gets 
the  notes  discounted,  thus  increasing  the  de- 
posits or  wholesale  currency ;  and  wholesale 
prices  thus  rising  higher,  retail  prices  respond, 
which  enables  the  banks  to  increase  their  circu- 
lating notes,  or  retail  currency,  and  so  the  in- 
strument is  expanded  without  any  increase  of 
value.3  Price  only  is  gained.4  Imports  then 
begin  to  flow  in,  to  be  sold  in  a  market  where 

1  I  have  stated  elsewhere  that  political  economy  assumes 
nothing  but  the  universality  of  human  selfishness.  Profit  is 
the  motive  of  these  inflations. 

2  Circulation  and  deposits. 

3  If  the  currency  be  a  currency  of  value,  it  cannot  be  ex- 
panded without  adding  value. 

4  Walker.  The  increase  of  deposits  may  be  preceded  by 
increase  of  circulation,  but  the  increase  in  both  is,  necessarily, 
nearly  simultaneous. 


A   PERFECT   INSTRUMENT.  99 

the  prices  are  high,  and  exports  cease  to  flow 
out  as  usual,  because  prices  are  too  high  to 
show  anv  profit  abroad ;  and  finally,  coin  begins 
to  go,  because  coin  or  gold  is  the  cheapest 
commodity  we  have  to  offer.  Instead  of  pur- 
chasing wheat  of  us,  England  will  take  gold 
and  purchase  wheat  in  Russia.  Now,  if  this 
currency  were  a  currency  of  value,  the  coin 
would  be  taken  directly  from  the  active  cur- 
rency itself,  thus  reducing  its  weight,  and  prices 
would  begin  to  fall ;  but  the  gold  for  export  is 
not  taken  from  the  currency,  and  here  is  where 
the  whole  mischief  lies ;  this  is  where  the  defect 
shows.  If  the  currency  were  a  pure  currency, 
it  could  not  be  unduly  inflated,  because  the 
export  would  reduce  it  as  fast  as  it  was  increased. 
But  the  export  is  taken  from  the  reserve  of  the 
banks,  and  not  from  the  currency,  therefore 
prices  do  not  fall ;  on  the  contrary,  they  increase, 
for  the  movement  has  not  spent  its  upward  force, 
and  the  more  they  increase,  the  more  gold  is 
called  for,  till  the  banks  get  alarmed  ;  and,  having 
shrunk  the  measure  of  value,  or  lowered  the  stand- 
ard, so  that  a  half  a  bushel  of  wheat,  or  thirty 
pounds,  is  worth  as  much  price  as  a  whole 
bushel,  or  sixty  pounds,  was  before  the  inflation, 
they  are  obliged  to  contract,  because  the  founda- 


100  THE   INSTRUMENT    OP    ASSOCIATION  : 

tion  of  the  superstructure  is  being  rapidly  under- 
mined ;  for  every  dollar  of  coin  taken  from  the 
bank  reserves,  they  are  obliged  to  contract  several 
dollars  of  circulation  and  deposits,1  panic  ensues, 
bill-holders  run  on  the  banks  for  specie,  and  the 
depositors  (as  in  1857)  threaten  to  draw  their 
deposits  in  coin,  and  the  banks  must  suspend  or 
break ;  the  final  result  being  that  the  standard  is 
raised  so  that  the  banks  can  resume.  Then 
those  who  have  contracted  debts  on  a  basis  of 
thirty  pounds  to  the  bushel,  are  obliged  to  pay 
on  a  basis  of  sixty  pounds  to  the  bushel,  and  the 
result  is  failure  and  confiscation.  The  whole 
process  of  contraction  under  this  mixed  system 
is  precisely  as  if  the  walls  of  a  brick  building 
that  had  been  carried  to  an  extreme  elevation, 
had  to  be  reduced  in  height  by  undermining, 
and  taking  out  bricks  from  the  foundation,  thus 
making  a  crash  inevitable.  With  a  pure  currency, 
the  elevation  could  never  attain  extreme  height, 
because  the  bricks  would  be  taken  off  as  fast  as 
they  were  put  on.  This  is  why,  under  the 
present  system,  the  national  banks  could  not 
suffer  any  considerable  contraction  of  legal 
tenders ;  and  this  is  one  reason  why  the  national 
bank  circulation   should   be    displaced    by   legal 

1  Walker's  chapters  on  mixed  currency  give  an  excellent 
analysis  of  the  subject. 


A    PERFECT   INSTRUMENT.  101 

tenders.  Such  is  the  character  of  the  instrument 
of  association,  formed  of  a  mixed  currency,  that 
was  in  use  antecedent  to  the  war.  The  inevit- 
able consequence  was  disorganization  of  our 
whole  social  system.  Manufacturing  industry, 
that  is  to  say,  the  products  of  labor  alone,  could 
not  possibly  compete  with  the  products  of  labor 
of  those  countries  where  they  had  a  currency  less 
inflated.  Our  currency  was  constantly  inflated  ; 
our  channels  of  circulation  were  overflowing 
all  the  time.  Hence  our  industry  was  diverted 
from  manufacturing  to  agricultural  pursuits ; 
the  products  of  the  soil,  and  of  our  mines, 
were  the  only  commodities  that  we  could  export 
to  advantage.  This  state  of  things  created  an  in- 
ordinate demand  for  the  products  of  slave  labor, 
and  the  system  of  slavery  grew  apace  under  this 
powerful  material  influence.  Foreign  nations 
were  the  largest  consumers  of  the  products  of 
slave  labor  —  the  largest  and  best  customers  of  the 
Slave  States  —  and  so  the  material  interests  of 
the  Slave  States  were  different  from  and  op- 
posed to  those  of  the  Free  States.  The  Free 
States  devoted  themselves  to  manufacturing 
industry,  partly  on  account  of  peculiarities  of 
soil  and  of  climate,  and  partly  on  account 
of   the    absence   of   slavery  —  of   the    presence 


102  THE   INSTRUMENT   OP  ASSOCIATION  : 

of  a  purer  democracy,  and  a  higher  degree 
of  civilization.  It  is  difficult,  perhaps,  to  dis- 
tinguish the  relation  of  cause  and  effect  be- 
tween manufacturing  industry  and  a  high  civ- 
ilization. It  is  stated  elsewhere  that  manufac- 
turing industry  is  susceptible  of  the  greatest 
extension  of  the  principle  of  the  division  of 
labor,1  and  the  greater  the  extent  of  the  division 
of  labor  in  any  community,  the  higher  the  civil- 
ization of  such  community.2  Be  that  as  it  may, 
the  Free  States  devoted  themselves  extensively  to 
manufacturing  industry ;  but  manufacturing  in- 
dustry could  not  flourish  as  it  ought,  under  such 
a  currency  ;  therefore  recourse  was  had  to  pro- 
tection. A  protective  tariff  was  insisted  upon 
by  the  Manufacturing  States  of  the  North,  not 
for  revenue  especially,  but  avowedly  for  protect- 
ing manufactures  that  could  not  flourish  under  an 
inflated  currency.  The  South  objected  to  such  a 
tariff;  it  vehemently  denounced  the  "  accursed 
policy  "  of  the  tariff,  if  not  justly,  certainly  nat- 
urally, and  perhaps  with  feelings  akin  to  those 
which  actuated  John  Hampden.  He  did  not 
oppose  taxation  because  it  would  ruin  his  fortunes, 
but  because  the  principle  upon  which  it  was 
levied  made  him  a  slave.3    The  material  interests 

*  Ante,  p.  10. 

2  Everett,  Guizot,  Cbenevix.  3  Burke. 


A    PERFECT    INSTRUMENT.  103 

of  the  South  were  wholly  alienated  from  those 
of  the  North  hy  a  detestable  currency.  "  What 
interest,"  asked  Mr.  Hayne,  "  has  South  Caro- 
lina in  a  canal  in  Ohio  ]  '  None  whatever,  from  • 
his  point  of  view.  The  system  of  slavery  was 
nurtured  by  a  currency  that  was  discouraging  to 
manufactures  and  civilization,  and  favorable  to 
the  products  of  forced,  unskilled  labor,  and  to 
barbarism.  And  so  alienation  begat  strife,  and 
strife  begat  civil  war.  Slavery  went  down  in  the 
struggle,  bequeathing  a  heavy  debt  and  onerous 
taxation,  and  a  currency  with  which  our  public 
men  seem  utterly  incompetent  to  deal.  Such  is 
the  result  of  violating  the  law  of  God  in  substi- 
tuting a  miserable  paper  currency  —  the  imma- 
terial shadow  —  in  place  of  the  real  substance, 
which,  so  far  as  finite  wisdom  can  comprehend 
the  Infinite,  was  intended  by  the  Creator  to  be 
the  money  of  society  —  the  instrument  of  asso- 
ciation.1 Credit  is  useful  in  its  place.  Mr. 
Wehster  never  uttered  a  truer  aphorism,  perhaps, 
than  when  he  said  that  the  phrase  "  Those  who 
trade   on  borrowed  capital  ought  to  break,"  was 

1  "  Thou  shalt  not  have  in  thine  house  divers  measures,  a 
great  and  a  small. 

"  But  thou  shalt  have  a  perfect  and  just  weight,  a  perfect  and 
just  measure  shalt  thou  have;  that  thy  days  may  be  length- 
ened in  the  land  which  the  Lord  thy  God  giveth  thee." — 
Deut.  xxv.  14,  15. 


104  THE   INSTRUMENT   OP   ASSOCIATION  : 

the  most  aristocratic  sentiment  ever  spoken  in 
this  country.  Credit  has  its  appropriate  func- 
tions in  the  economy  of  society,  but  it  never  has 
t  supported,  and  never  will  support  a  note  circu- 
lation that  will  perform  the  functions  of  money 
with  any  degree  of  satisfaction  or  security. 
Value  is  the  indispensable  quality  of  money, 
and  the  precious  metals  embody  value  in  its 
most  convenient  and  economical  form.  They 
constitute  the  only  proper  material  for  the  instru- 
ment of  association ;  and  had  it  never  been  at- 
tempted to  supersede  a  value  currency  in  this 
country  by  a  debt  currency,  it  is  not  too  much 
to  sav  that  there  would  have  been  no  motive  to 
extend  slavery,  but  a  motive  to  extinguish  it ; 
there  would  have  been  no  inducement  to  break 
up  the  Union,  but  every  incentive  to  knit  the 
fraternal  bond  more  closely.  It  is  proper  to  say 
that  a  demand  for  specie  from  this  country  may 
arise  from  a  sudden  contraction  of  the  circulation 
and  deposits  of  the  Bank  of  England,  in  conse- 
quence of  an  export  of  coin  from  thence,  or  on 
account  of  political  troubles ;  and  in  order  to 
strengthen  the  Bank  of  England,  our  banks 
under  the  old  system  might  at  any  time  be 
obliged  to  suspend.  It  is  a  law  of  political 
economy,  that  any  considerable  contraction  of  the 


A   PERFECT   INSTRUMENT.  105 

currency  of  any  commercial  country  will  cause 
a  flow  of  precious  metals  thither,  precisely  as  air 
will  flow  into  and  fill  a  vacuum. 

Having1  said  thus  much  of  the  instrument  of 
association  as  it  existed  anterior  to  the  war,  and 
having  analyzed  the  instrument  of  association  as 
it  exists  at  present,1  and  having-  pointed  out  the 
necessity  and  the  method  of  adjusting  the  instru- 
ment,2 it  will  be  observed  that  the  adjustment  of 
the  existing  instrument  will,  when  it  is  effected, 
leave  us  with  a  debt  currency  of  circulation  and 
deposits,  whose  circulating  moiety  will  consist 
of  notes  of  redemption,  convertible  into  coin  on 
demand.  The  problem  then  presenting  itself  for 
solution,  is  to  substitute  a  metallic  circulation  in 
place  of  the  notes  of  redemption  ;  for  it  will  be 
observed,  that  although  the  notes  of  redemption 
will  be  payable  on  demand,  they  will  be,  never- 
theless, a  note  circulation,  or,  a  circulation  of 
debt,  and  not  a  circulation  of  value.  If  the 
present  legal  tender  issue  be  not  increased,3  there 
will  be  about  §660,000,000  to  be  displaced  by 
the  notes  of  redemption,  at  the  rate  of  three  for 
one,  making  a  circulation  of  the  redemption  notes 
of    about   $220,000,000,   an  amount  which   is 

1  Ante,  chap.  ii.  2  Ante,  chaps,  iii.,  iv. 

3  There  is  great  danger  of  this. 


106  THE   INSTRUMENT    OF    ASSOCIATION  : 

quite  as  much  as  can  be  sustained  at  a  con- 
vertible point.1  It  will  be  necessary  to  prohibit 
banks  of  issue  in  the  United  States,  thus  leaving 
the  channels  of  circulation  to  be  filled  by  the  re- 
demption notes  alone.  The  withdrawal  of  the 
notes  of  redemption  should  be  very  gradual,  not 
exceeding  the  value  of  our  surplus  gold  product,2 
say  at  the  rate  of  about  fifty  millions  per  annum, 
and  in  order  to  fill  the  vacuum  created  by  the 
withdrawal  of  these  notes,3  the  Secretary  of  the 
Treasury  should  be  authorized  and  instructed  by 
law  to  receive  deposits  of  bullion,  and  grant 
certificates  of  deposit  or  receipts  therefor,  paya- 
ble to  bearer  on  demand,  in  sums  of  not  less 
than  $5,000.4  He  should  also  receive  deposits  of 
coin,  and  grant  certificates  of  deposit  or  receipts 
therefor,  payable  to  bearer  on  demand,  in  sums 
of  not  less  than  <$5,  nor  more  than  $1,000;  and 
such  certificates  of  deposit,  or  receipts  for  bullion 
or  coin,  should  be  lettered  and  numbered  so  as 

1  This  is  a  little  more  than  $6  per  capita.  The  currency 
in  1857  became  inconvertible  when  the  circulation  was  about 
%  7  per  capita. 

2  Beyond  what  may  be  needed  for  consumption  in  the  arts. 

3  As  these  redemption  notes  are  withdrawn,  value  will  be 
needed  to  circulate  other  values,  and  the  precious  metals  will 
begin  to  flow  into  the  circulation. 

4  The  object  of  these  deposits  of  bullion  is,  that  when  there 
is  an  export  drain,  bullion  will  be  taken  instead  of  coin,  thus 
saving  the  seigniorage. 


A   PERFECT   INSTRUMENT.  107 

to  preserve  the  individuality  of  each  certificate  or 
receipt ;  and  whenever  any  certificate  or  receipt, 
having  been  once  issued,  shall  be  presented  and 
received  into  the  Treasury  for  redemption,  such 
certificate  or  receipt  shall  thereupon  be  canceled, 
and  new  certificates  or  receipts,  with  different 
letters  and  numbers,  shall  be  issued  against  each 
new  deposit  of  bullion  or  coin.1  And  whenever 
all  the  notes  of  redemption  shall  have  been  with- 
drawn, such  certificates  of  deposit  or  receipts 
for  bullion  or  coin,  shall  form  the  exclusive  sub- 
stitute 2  circulation  of  the  country,  the  metallic 
circulation  itself  being  used  in  sums  under  five 
dollars.  It  will  be  observed  that  the  withdrawal 
of  the  notes  of  redemption  will  be  a  reduction 
of  the  debt,  and  the  means  to  withdraw  those 
notes  must  come  from  revenue.  I  have  sug- 
gested fifty  millions  per  annum  as  the  amount  to 
be  withdrawn,  because  that  is  about  our  surplus 
gold  product,  and  if  the  gold  is  not  used  for  that 
purpose  it  will  be  sent  abroad;  but  it  cannot  be 
exported  except  at  a  loss  equal  to  the  cost  of 
transmission,  and  other  products  can  be  advanta- 
geously used  instead,  under  a  sound  currency,  in 
paying  for  our  imports.3    The  revenue  necessary 

1  This  is  intended  as  a  check  against  forgery. 

2  That  is  to  say,  the  substitute  or  proxy  of  the  metal  itself. 

3  If  fifty  millions  per  annum  be  thought  excessive,  a  less 


108  THE   INSTEUMENT   OF   ASSOCIATION  : 

to  retire  this  debt  currency,  could  be  derived 
from  a  tax  on  United  States  securities.  I  am 
aware  that  existing  laws  forbid  the  taxation  of 
United  States  securities,  and  this  restriction 
should  remain  in  force  as  against  state  and  mu- 
nicipal taxation.  But  the  exemption  of  so  large 
a  portion  of  accumulated  capital  from  taxation, 
and  the  imposition  of  the  whole  burden  of  taxa- 
tion upon  the  wages  of  labor,  rent,  and  profits,  is 
subversive  of  public  morals,  calculated  to  cast 
odium  upon  the  law,  unendurable  under  a  dem- 
ocratic form  of  government,1  and  menacing  to 
the  stability  of  the  Union.  Law  is  beneficence 
acting  by  rule.2  Law  is  an  instrument  of  justice, 
and  whenever,  from  any  cause,  it  becomes  an 
engine  of  oppression,  it  will  be  more  honored  in 
the  breach  than  the  observance.  Whenever  the 
notes  of  redemption  shall  have  been  entirely  with- 
drawn, the  circulation  will  have  become  filled 
with  the  money  of  God  and  nature,  and  we 
shall  have  a  pure  currency,  a  perfect  instrument 
of  association.  Labor  will  be  no  longer  despoiled 
of  its  just  rewards  ;  commerce  may  safely  spread 

sum  could  be  applied  for  the  purpose.     The  reasons  for  sug- 
gesting fifty  millions  are  cogent. 

1  This  exemption  of  capital  from  taxation  is  a  violation  of 
political  economy,  and  contravenes  the  first  of  the  four  prin- 
ciples of  taxation  laid  down  by  Adam  Smith. 

2  Burke. 


A   PERFECT    INSTRUMENT.  109 

its  wings  to  the  perennial  breeze ;  partisan  warfare 
will  cease  its  tumult,1  and  the  country  will  have 
attained  the  happiest  epoch  in  its  history.  Let 
it  be  forever  understood  that  there  shall  be  no 
banks  of  issue  in  the  United  States  ;  let  Congress 
fulfill  its  constitutional  duty  regarding  the  money 
of  the  country,  and  "  regulate  the  value  thereof;"  2 
and  then  banks  of  deposit  and  discount  may  be 
established  without  limit,  under  wholesome  reg- 
ulations. 

But  here  again,  perhaps,  the  argument  may  be 
pressed  upon  us,  that  the  notes  of  redemption, 
if  not  in  excess,  will  remain  convertible,  and  that 
it  will  be  a  great  saving  to  use  them,  instead  of 
the  precious  metals,3  for  the  instrument  of  asso- 
ciation. The  answer  to  this  is  that  the  govern- 
ment, through  its  sub-treasury  agencies,  cannot 
exercise  the  functions  of  a  bank  of  issue,  and 
regulate  the  volume  of  these  notes  of  redemption 
according  to  the  changing  pulse  of  commerce.4 

i  It  is  not  expected  that  political  divisions  will  cease,  but 
party  spirit  will  lose  much  of  its  malignity.  Political  rivalry 
will  be  a  rivalry  for  good  and  not  for  evil;  it  will  exercise 
salutary  restraint  upon  the  ascendant  side. 

2  Constitution,  art.  1,  sec.  8,  clause  5. 

3  Ante,  p.  22. 

4  "  It  is  not  desirable  that  to  the  ever-growing  attributions  of 
the  government,  so  delicate  a  function  should  be  superadded." 
—  Mill 


110  THE   INSTRUMENT   OP   ASSOCIATION  : 

The  volume  of  notes  will  depend  upon  the  condi- 
tion of  the  public  revenue  and  expense.  Again, 
these  notes  are  evidences  of  debt,  and  it  is  and 
has  been  the  inevitable  fate  of  such  a  currency, 
that,  under  some  pretext  or  other,  the  issue  is 
always  increased  to  excess.  The  least  deficit  in 
the  revenue,  the  least  complaint  of  the  burden 
of  taxation  will  be  the  signal  for  increased  issues. 
It  must  be  conceded  that  the  mass  of  the  people, 
and  the  legislators  of  our  country,  are  ignorant 
of  the  true  principles  of  political  economy,  and 
especially  of  the  theory  of  money.  Nor  do 
those  who  fill  positions  of  trust  in  the  executive 
departments  of  the  government,  seem  to  possess 
anything  more  than  a  superficial  knowledge  of 
this  important  subject.  The  deplorable  igno- 
rance of  political  economy  manifested  by  our 
public  men  since  the  beginning  of  the  war,  has 
been  most  unfortunate  in  its  results.  And, 
especially,  the  management  of  the  Treasury  De- 
partment since  the  close  of  the  war  has  been 
charlatanical  and  profligate  in  character.  The 
history  of  the  civilized  world  affords  no  parallel 
for  such  outrageous  abuse  of  fiscal  authority, 
and  it  is  to  be  hoped  that  it  never  will.  We 
have  probably  accumulated  a  foreign  debt  of 
eiffht  hundred  millions  of  dollars  since  the  close 


A  PERFECT   INSTRUMENT.  Ill 

of  the  war,  which  is  entirely  owing  to  mal- 
administration of  this  high  trust.  Congress 
must  be  held  responsible  for  investing  any  min- 
ister of  finance  with  such  destructive  power. 
The  past  and  current  history  of  the  executive 
and  legislative  departments  of  our  government 
is  a  warning  to  us  not  to  trust  any  power 
over  the  currency  to  any  man,  or  any  body  of 
men.1  Such  a  power  is  seldom  understood 
and  always  abused.  The  money  of  the  country 
must  be  self-regulating,  and  if  it  be  composed 
of  value  and  not  debt ;  if  it  be  composed  of  the 
precious  metals,  though  it  bear  the  image  and 
superscription  of  Caesar ;  it  is  still  the  money  of 
God,  designed,  doubtless,  as  one  of  the  agents 
in  preserving  the  harmony  of  the  universe. 

1  The  office  of  finance  minister  in  this  country,  of  late 
years,  has  commonly  been  occupied  by  what  Adam  Smith 
termed  "that  insidious  and  crafty  animal,  vulgarly  called  a 
statesman  or  politician,  whose '  counsels  are  directed  by  the 
momentary  fluctuation  of  affairs."  Great  national  emergen- 
cies expose  incompetent  officials.  It  was  so  in  England.  Mr. 
Vansittart,  who  was  Chancellor  of  the  Exchequer  from  1812 
to  1S22,  "was  simply  a  thoroughly  incompetent  mind;"  and 
it  was  said  by  the  opposition  members  of  the  House  of  Com- 
mons at  that  time,  that  "  the  present  distresses  were  occasioned 
by  having  a  miserable,  miscalculating,  puny  Chancellor  of  the 
Exchequer,  who  did  not  know  the  resources  of  the  country, 
owing  to  the  ignorance  and  want  of  power  of  his  little  mind." 


112  THE   INSTRUMENT   OF   ASSOCIATION  : 


VII. 


THE   INSTRUMENT    AS    AFFECTED    BY    THE    PRODUCT    OP 
PRECIOUS    METALS. 

FTTHE  method  of  creating  a  perfect  instrument 
of  association  has  been  shown,  and  it  re- 
mains to  demonstrate  how  this  instrument  can 
be  maintained  in  all  its  perfection,  notwithstand- 
ing that  the  surplus  product  of  precious  metals 
constantly  tends  to  increase  its  weight  and  thus 
impair  its  efficiency;  for  it  is  a  fundamental  prin- 
ciple that  the  smaller  the  weight  and  value  of  the 
instrument,  the  greater  its  efficiency,  and  the 
greater  the  prosperity  of  the  community.1  By 
surplus  product  of  precious  metals,  is  meant  that 
portion  not  needed  for  consumption  in  the  arts, 
and  which  cannot  remain  in  the  country ;  for 
if  it  be  attempted  to  increase  the  value  and 
weight  of  the  instrument,  industry  will  languish, 
and  beyond  a  certain  weight  the  instrument  will 
not  be  susceptible  of  further  addition,  and  then 
the  precious  metals  are  expelled  from  the  coun- 
try as  fast  as  produced.     Supposing  that  2,239,- 

1  Ante,  p.  19. 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.   113 

583  pounds,  troy  weight,  of  standard  gold,  or 
$500,000,000,  is  the  maximum  value  and 
weight  of  the  instrument  compatible  with  a 
flourishing'  condition  of  society,  it  becomes  mani- 
fest that  the  weight  and  value  of  this  instrument 
cannot  be  increased  except  at  the  expense  of  the 
prosperity  of  the  whole  community.  It  may  be 
increased,  perhaps,  twenty  per  cent.,  or  possibly 
more ;  but  there  is  a  limit  beyond  which  it  will 
be  impossible  to  increase  it  under  any  circum- 
stances, and  when  this  limit  is  reached,  it  will  be 
impossible  to  retain  the  surplus  in  the  country.1 
It  might  as  well  be  attempted  to  stop  the  eternal 
flow  of  waters  over  Niagara  Falls.  Since  it  is 
impossible  to  retain  this  surplus  product  of  the 
precious  metals,  and  since  the  prosperity  of  the 
country  depends  entirely  upon  the  weight  of 
the  instrument  of  association  being  maintained  at 
the  lowest,  point  permissible  by  the  international 
laws  of  trade,  it  is  clearly  the  interest  of  the 
people,  that  there  be  every  possible,  as  well  as 
profitable  inducement  offered,  for  the  exportation 
of  the  entire  surplus  product  of  precious  metals 
as  soon  as  produced.2     What  inducement  to  ex- 

1  It  is  unnecessary  to  demonstrate  this  again.     Nothing  is 
more  fully  established  in  the  science  of  political  economy. 

2  Time  is  an  important  element  in  the  economy  of  society. 

8 


114  THE   INSTRUMENT   OF   ASSOCIATION: 

port  the  precious  metals  may  be  offered  without 
detriment  to  the  country  at  large,  it  is  my  pur- 
pose now  to  inquire.  In  doing  this,  I  shall 
touch  upon  a  most  interesting  branch  of  the  sci- 
ence of  political  economy,  a  branch  which  I 
might  well  have  wished  to  avoid,  if  it  were  pos- 
sible, because  it  necessitates  a  survey  of  that 
which  has  been  the  battle-ground  of  contending 
parties  since  the  formation  of  our  separate 
national  existence.  It  is  clear,  from  the  forego- 
ing, that  so  long  as  we  continue  to  produce  the 
precious  metals,  the  balance  of  account,  or  the 
exchange,  or,  as  it  is  called,  the  balance  of  trade, 
will  always  be  against  us.  But  though  the  bal- 
ance of  trade  may  always  be  against  us,  the 
balance  of  consumption,  under  proper  legislation, 
will  always  be  in  our  favor.1  It  is  obvious  that 
there  can  be  no  profit  in  exporting  the  precious 
metals  ;  on  the  contrary,  there  will  Jbe  a  loss 
equal  to  the  cost,  of  transmission  ;  but  if  the 
precious  metals  can  be  used  abroad  to  purchase 
some  commodity  that  will  be  reproductively  con- 

1  "  There  is  another  balance,  indeed,  which  has  already 
been  explained,  very  different  from  the  balance  of  trade,  and 
which,  according  as  it  happens  to  be  favorable  or  unfavorable, 
necessarily  occasions  the  prosperity  or  decay  of  every  nation. 
This  is  the  balance  of  the  annual  produce  and  consumption." 
—  S7nith. 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.     115 

sumed  at  home,  such  as  wool,  for  instance,  for 
less  value  than  it  will  cost  if  produced  at  home, 
it  is  clear  that  the  exchange  will  be  to  our  ad- 
vantage.1 If,  for  instance,  a  dollar's  worth  of 
bullion  exported  will  bring  back  three  pounds 
of  wool,  of  a  quality  equal  to  that  which  costs 
half  a  dollar  per  pound  to  produce  at  home, 
then  it  is  clear,  that  while  the  balance  of  account, 
or  balance  of  trade,  will  be  against  us,  the  bal- 
ance of  consumption  will  be  largely  in  our  favor. 
But  if  this  bullion  is  exported  at  a  loss,  to  pur- 
chase abroad  that  which  is  unproductively  con- 
sumed at  home,  such  as  a  finished  silk  fabric, 
whereon  the  science  of  production  is  ended,  the 
balance  of  consumption  is  largely  against  us  ;  and 
in  this  case  it  were  better  that  the  bullion  had 
been  thrown  into  the  sea,2  rather  than  we  should 
lose  the  cost  of  transmission  abroad,  and  then 
again  lose  the  unproductive-consumption-market3 

i  The  exchange  is  profitable,  not  because  we  get  more  of 
human  service  or  labor  for  a  dollar  than  we  could  at  home, 
but  because  we  get  more  wool,  which  is  not,  except  to  a  small 
extent,  the  product  of  human  effort.  Wealth  is  said  to  be  the 
product  of  labor ;  more  strictly  speaking,  it  is  the  product  of 
antecedent  consumption,  for  labor  itself  is  the  product  of  pre- 
vious consumption  of  food.  Consumption  and  labor  both  may 
be  unproductive,  in  which  case  poverty,  and  not  wealth,  is 
the  result. 

8  Bowen. 

3  I  mean  by  this,  the  home  market  for  all  commodities  that 


116  THE   INSTRUMENT   OF   ASSOCIATION  : 

for  commodities  of  home  production  ;  for  this 
silk  fabric,  if  consumed  at  home,  interferes  with 
the  product  of  home  industry,  and  labor  is  the 
only  source  of  wealth.  Price  is  no  criterion  of 
the  advantage  or  disadvantage  of  commerce. 
The  money  balance  for  or  against  us  is  no 
evidence  of  a  favorable  foreign  trade,  or  oth- 
erwise. In  the  case  we  have  supposed,  the 
labor  of  those  who  extracted  the  bullion  from 
the  mines  and  brought  it  to  the  seaboard  was 
thrown  away.  "  The  balance  of  consumption," 
says  Adam  Smith,  "  may  be  constantly  in  favor 
of  a  nation,  though  what  is  called  the  balance 
of  trade  may  be  generally  against  it."1  This 
was  the  case  where  we  supposed  the  wool  was 
received  in  exchange  for  the  bullion.  And,  on 
the  other  hand,  where  the  finished  silk  fabric 
was  received  in  exchange  for  the  bullion,  both 
the  balance  of  trade  and  balance  of  consump- 
tion were  against  us.  In  the  cases  which  we 
have  supposed,  the  so-called  free  trader  contends 
that  it  is  advantageous  to  import  that  which 
is  unproductively  consumed  (the  finished  silk 
fabric),  if  it  can  be  imported  for  less  money  than 
it  will  cost  if  produced  at  home.     And  the  so- 

are  unproductively  consumed.  "  The  division  of  labor  is  lim- 
ited by  the  extent  of  the  market." —  Smith. 

1  This  principle  seems  to  be  entirely  ignored  by  modern 
writers  who  advocate  what  is  called  free  trade. 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.     117 

called  protectionist  would  prohibit  that  which 
is  reproductively  consumed  (the  raw  wool),  if 
it  can  be  produced  at  home,  and  so  protect 
home  industry.  Both  ignore  the  balance  of 
consumption  ;  both  are  wrong  ; 1  both  may  be 
honest  in  their  views.  "  Of  all  these  false  theo- 
ries," says  Mill,  "  the  most  notable  is  the  doctrine 
of  Protection  to  Native  Industry ;  a  phrase 
meaning  the  prohibition,  or  the  discouragement 

1  The  protectionist  forgets  that  wool  is  chiefly  the  creation 
of  Omnipotence,  and  that  it  is  reproductively  consumed.  The 
value  added  to  the  wool  when  it  has  become  a  finished  textile, 
is  entirely  the  work  of  man,  and  this  finished  textile  is  unpro- 
ductively  consumed.  So  far  as  that  parcel  of  wool  is  con- 
cerned, the  science  of  production  is  ended.  The  labor  em- 
ployed in  making  up  the  materials  is  the  same,  whether 
using  foreign  or  domestic  goods. 

If  the  money  value  of  commodities  exchanged  were  the  cri- 
terion of  the  advantageousness  of  foreign  trade,  I  am  quite  sat- 
isfied that  the  protectionist  of  the  present  Congressional  school 
occupies  an  untenable  position.  As  it  is,  duties  upon  raw 
wool,  or  any  other  commodity  of  reproductive  consumption, 
are  wholly  indefensible  upon  any  principle  of  political  econ- 
omy; they  necessarily  work  injury  to  the  material  prosperity 
of  the  country;  they  favor  foreign  industry  and  are  inimical 
to  home  industry.  I  can  conceive  of  no  possible  circumstances 
justifying  such  a  violation  of  economical  law.  The  greater 
the  fiscal  embarrassments  of  a  nation,  the  stronger  the  argument 
for  the  free  admission  of  all  commodities  reproductively  con- 
sumed. Reproductive  consumption  is  wealth  itself,  and  should 
be  encouraged,  especially  since  the  "  balance  of  trade  "  must 
be  against  us  so  long  as  we  produce  a  surplus  of  the  precious 
metals.  If  we  cannot  preserve  a  favorable  balance  of  trade, 
we  must  preserve  a  favorable  balance  of  consumption. 


118  THE   INSTRUMENT   OF  ASSOCIATION: 

by  heavy  duties,  of  such  foreign  commodities  as 
are  capable  of  being  produced  at  home."  This 
is  a  perfectly  fair  statement  of  the  doctrine  of 
protection  as  exemplified  by  Congress,  but  it  is 
not  the  doctrine  of  protection  as  sanctioned  by 
the  laws  of  political  economy.  It  is  the  attempt 
to  get  rich  by  legislation  ;  it  is  the  everlasting 
search  after  the  philosopher's  stone.  The  true 
doctrine  of  protection  may  be  stated  thus  :  the 
discouragement,  by  heavy  duties,  of  such  foreign 
commodities  as  are  unproductively  consumed, 
and  the  encouragement,  by  free  admission,  of 
such  foreign  commodities  as  are  reproductively 
consumed.  Unproductive  consumption  of  do- 
mestic commodities  is  the  consumption  of  that 
which  had  previously  been  produced  within  the 
nation  ;  and  so  far  as  the  wealth  of  the  nation  is 
concerned,  the  effect  thereof  is  negative.1  I  am 
not  speaking  of  the  consumption  of  matter,  for 
that  is  created  by  God  ;  but  I  am  speaking  of 
the  consumption  of  utility — that  "unsubstan- 
tial, intangible,  abstract  commodity,  composed  of 
time,  intellect,  and  exertion,"2  commonly  known 
as  labor,  utility,  or  value,  which  is  all  that  man 

1  If  unproductive  consumption  exceeds  production,  wealth 
decreases.  If  it  equals  production,  wealth  is  neither  increased 
nor  decreased.     If  it  be  less,  wealth  accumulates. 

2  Chenevix. 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.     119 

produces.  Unproductive  consumption  of  foreign 
commodities  that  were  not  produced  within  the 
nation,  on  the  other  hand,  is  a  net  loss.  In  the 
first  instance,  the  nation  gains  by  production  and 
loses  by  consumption.  In  the  latter  instance, 
the  nation  loses  by  consumption  but  had  not  pre- 
viously gained  by  production.  The  modern  free 
trader  says  this  is  of  no  consequence,  for  the 
whole  world  is  one  community,  and  what  Amer- 
ica loses  some  other  nation  gains,  and  so  it  is  the 
very  best  thing  that  could  happen.  The  partisans 
of  the  two  opposing  doctrines  are  thus  spoken  of 
by  Say :  "  The  merchants  and  manufacturers, 
who  seldom  look  beyond  the  actual  sale  of  their 
products,  or  inquire  into  the  causes  which  may 
operate  to  extend  their  sale,  have  warmly  sup- 
ported a  position  apparently  so  consistent  with 
their  interests ;  the  poets,  who  are  ever  apt  to 
be  seduced  by  appearances,  and  do  not  consider 
themselves  to  be  wiser  than  politicians  and  men 
of  business,  have  been  loud  in  the  praise  of 
luxury;  and  the  rich  have  not  been  backward 
in  adopting  principles  that  exalt  their  ostenta- 
tion into  a  virtue,  and  their  self-gratification 
into  benevolence."  The  motto,  free  trade, 
expresses  an  abstract,  impracticable,  Utopian 
idea.    No  commercial  nation,  civilized  or  uncivil- 


120  THE   INSTRUMENT   OP  ASSOCIATION: 

ized,  practices  free  trade ;  nor  is  it  possible  that 
they  should,  for  free  trade  is  incompatible  with 
national  existence.1  International  free  trade  is 
destructive  of  national  free  trade.  There  is  a 
vast  field  for  philanthropic  enterprise  at  home, 
within  the  jurisdiction  of  our  own  laws,  where  rail- 
road, telegraph,  and  other  monopolies  flourish. 
But  when  other  nations  preach  to  us  the  human- 
izing-, Christianizing,  liberalizing,  civilizing  doc- 
trines of  free  trade,  is  it  too  much  to  ask  them  to 
practice  at  home  what  they  preach  abroad  1  And, 
on  the  other  hand,  the  doctrine  of  protection,  as 
it  is  too  commonly  understood  among  us,  seems  to 
be  nothing  more  than  an  attempt  to  counteract  the 
effects  of  a  redundant  currency,  and  to  get  rich  by 
excessive  duties  on  foreign  commodities.  The  ad- 
vocates of  this  kind  of  protection  seem  to  forget 
that  the  prices  of  commodities  in  this,  or  any  coun- 
try, depend  upon  the  condition  of  the  currency,  and 
upon  the  law  of  supply  and  demand.  The  principle 
of  protection  within  its  proper  limits  is  undoubt- 
edly sound,  and  it  is  the  sacred  duty  of  every 
government  to  extend  the  shield  of  its  protection, 
so  far  as   may  be  needful,  over  every  laudable 

i  "  To  expect,  indeed,  that  the  freedom  of  trade  should 
ever  be  entirely  restored  in  Great  Britain,  is  as  absurd  as  to 
expect  that  an  Oceana  or  Utopia  should  ever  be  established 
in  it."  —  Smith. 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.    121 

enterprise  of  its  people  ;  but  the  first  step  towards 
protection  is  the  establishment  of  a  sound  cur- 
rency. This  theory  of  spontaneity,  however ; 
this  idea  that  industry  and  the  various  arts  will 
spring  into  existence  without  careful  culture  and 
solicitation,  is  unfounded  in  political  economy  or 
common  sense.  We  might  as  well  expect  fields 
of  wheat  and  corn  to  spring  into  existence 
without  the  aid  of  the  physical  and  mental  powers 
of  man.1  In  this  exceedingly  practical  age,  when 
the  jealousies  of  trade  are  sharp  and  unscrupu- 
lous, it  is  criminal  for  any  government  to  hold 
itself  neutral  in  the  contest,  not  caring  whether 
those  from  whom  it  derives  its  support  by  heavy 
taxation,  sink  or  swim  under  the  weight  of  their 
accumulated  burdens.  "  Strictly  speaking,"  says 
Say,  "  there  is  no  act  of  government  but  what 
has  some  influence  on  production."  A  gov- 
ernment, therefore,  cannot  be  neutral  in  such  a 
contest ;  it  must  aid  in  striking  down  its  own 
people's  industries,  or  it  must  extend  its  help- 
ing hand  to  hold  them  up.  Adam  Smith  him- 
self admits  that  the  establishment  of  any  new 
manufacture,  or  branch  of  commerce,  or  new 
practice  in  agriculture,  is  always  a  speculation, 
and  the  losses  contingent    thereupon    are    com- 

i  Phillips. 


122  THE   INSTRUMENT   OF   ASSOCIATION  : 

monly  greater  than  the  profits ;  but  when  the 
new  enterprise  becomes  well  known,  the  competi- 
tion reduces  the  profits  to  the  level  of  other  trades. 
But  the  free  trader  will  say,  that  the  artisan  who 
employs  his  time  in  making1  a  finished  silk  fabric 
with  the  aid  of  machinery  can  be  more  profitably 
employed  at  some  other  pursuit,  if  the  silk  fabric 
can  be  imported  for  less  money  than  it  will  cost 
when  produced  at  home.1  The  answer  to  this  is, 
that  so  far  as  the  nation  is  concerned,  no  amount 
of  reasoning  can  show  it  to  be  advantageous  to 
import  that  which  is  unproductively  consumed, 
no  matter  what  the  price  may  be.  Price  is  not 
alone  to  be  considered.  The  character  of  the 
consumption  is  the  criterion.  If  the  consump- 
tion of  any  imported  article  be  productive,  or  re- 
productive, it  increases  the  wealth  of  the  nation. 
If  it  be  unproductive,  it  destroys  the  wealth  of 
the  nation.  Manufacturing  industry  is  susceptible 
of  the  most  extended  application  of  the  principle 
of  the  division  of  labor,  and  therefore  manufac- 
turing industry  is  most  profitable  and  most  civil- 
izing2 to  the  nation.  Nothing  can  compensate  a 
nation  for  diverting  its  industry  from  the  mechan- 

• 

1  His  labor  cannot  possibly  be  so  productive,  either  to  him- 
self or  his  country,  in  any  other  pursuit  than  that  for  which 
he  is  especially  adapted  by  habit  and  natural  gift. 

2  Ante,  pp.  16,102. 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.    123 

ical  arts,  provided  that  form  of  industry  be  not 
excessively  cultivated,  to  the  exclusion  of  agri- 
culture.1 Mechanical  industry  is  preeminently 
the  conquest  of  mind  over  matter,2  and  whenever 
that  form  of  industry  is  assailed,  the  revenue  of 
the  state  suffers,  and  its  civilization  is  impaired. 
But  the  free  trader  says,  to  restrict  the  importa- 
tion of  foreign  manufactures,  is  to  destroy  foreign 
commerce.  Supposing  this  were  so,  is  foreign 
commerce  the  summum  honum  of  our  existence  ? 
But  it  is  not  so.  "  The  increase  of  domestic 
industry  lays  the  foundation  of  foreign  com- 
merce."3 To  what  is  the  vast  and  profitable 
foreign  commerce  of  England  owing,  except  it 
be  to  the  enormous  development  of  her  manu- 
facturing industry  \  A  form  of  industry,  the 
vast  extent  of  which  was  called  into  being  by 
the  most  unscrupulous  and  tyrannical  commercial 
policy  that  has  yet  disgraced  the  annals  of  history. 
A  policy  which  Adam  Smith  characterized  as 
a  "  manifest  violation  of  the  most  sacred  rights 
of  mankind."  It  need  not  be  wondered  at 
that  Adam  Smith  was  a  free  trader,  living,  as  he 
did,  at  a  time  when   such   atrocious   legislation 

1  This  is  the  great  economical  mistake  of  England. 

2  A.  von  Humboldt. 

3  Hume.     "  Manufactures  are,  in  almost  all  countries,  the 
chief  support  of  foreign  trade." —  Smith. 


124  THE    INSTRUMENT    OF   ASSOCIATION  : 

was  resorted  to,  for  the  purpose  of  establishing 
a  manufacturing  monopoly,  against  which  no 
competition  was  allowed  to  lift  its  head,  —  a 
monopoly  which  it  is  now  sought  to  perpetuate, 
under  pretensions  of  liberality.1  If,  then,  it  be 
disadvantageous  to  the  nation  at  large  to  import 
the  finished  silk  fabric,  how  does  it  affect  the 
artisan  himself,  whose  occupation  is  thus  cruelly 
destroyed  1  He  can  become  a  scavenger,  perhaps ; 
but  the  ranks  of  that  useful  class  of  people  are 
already  full,  and  if  he  adds  himself  to  that  class, 
it  will  tend  to  break  down  the  wages  of  the 
whole.  He  can  become  a  farm  laborer,  perhaps  ; 
but  there  is  already  a  surplus  of  labor  in  that 
direction,  so  much  so,  that  corn  has  been  used 
for  fuel  in  the  Western  portion  of  our  country. 
He  has  no  capital  but  his  industry.  "  He  does  not 
choose  to  expatriate  himself.  His  whole  capital, 
like  himself,  is  American.  He  is  rooted  in  the 
soil.  He  is  not  a  cosmopolite  as  to  industry  and 
arts ;    he   is  an   American." 2     The   pursuit  of 

1  England  gives  free  admission  to  cotton,  because  it  is 
reproductively  consumed  ;  she  lays  a  heavy  impost  upon  raw 
tobacco,  which  is  unproductively  consumed;  and  a  still  heavier 
impost  upon  manufactured  tobacco,  which  is  even  more  un-A 
productively  consumed.  (Taritfof  1859.)  This  is  sound  eco- 
nomical policy,  but  a  policy  which  only  by  a  gross  abuse  of 
language  can  be  denominated  free  trade.  It  is  a  policy  pre- 
cisely that  for  which  I  contend.     It  is  protection. 

2  Phillips. 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.     125 

happiness  is  declared  to  be  one  of  the  unalien- 
able rights  of  man,  with  which  he  has  been 
endowed  by  his  Creator ;  and  it  is  no  less  a 
crime  against  God  than  an  outrage  upon  the 
artisan,  to  rob  him  of  his  capital,  and  condemn 
him,  and  those  whom  God  has  given  him,  to  the 
pursuit  of  wretchedness.  No !  there  is  no 
nobler,  no  more  sacred  duty  of  a  government, 
than  that  which  imposes  upon  it  the  necessity  of 
protecting  the  industry  of  a  patriotic  people,  who 
hold  everything  that  is  most  dear  to  them  at  the 
call  of  their  country.  But  the  most  efficacious, 
and  the  only  method  of  protecting  the  industry 
of  the  people,  is  to  perfect  the  instrument  of 
association,  and  to  maintain  it  in  perfection  by 
encouraging  the  export  of  the  surplus  product 
of  precious  metals.  In  order  to  encourage  the 
export  of  precious  metals,  it  will  be  necessary  to 
encourage  the  import  of  all  commodities  that 
are  productively  or  reproductively  consumed,  and 
to  discourage  the  import  of  all  commodities  that 
are  unproductively  consumed.  This  is  the  only 
principle  involved  in  tariff'  legislation.  There 
can  be  no  greater  blow  to  industry  than  to 
maintain  the  instrument  of  association  at  an  ex- 
cessive value,  or  weight.  It  is  most  singular 
that  the  protectionist  mind  has  generally  favored 


126  THE   INSTRUMENT   OP   ASSOCIATION  : 

an  enlarged  currency.1  A  recent  convention  of 
manufacturers  favored  the  maintenance  and  ex- 
tension of  the  national  bank  system ; 2  while  a 
leading  metropolitan  journal,  devoted  to  the 
interests  of  protection,  advocated  the  immediate 
resumption  of  specie  payments,  without  any 
preceding  contraction  of  the  currency,  but 
rather  with  an  expansion,  if  anything,  as  a 
means  to  protect  home  industry,  —  a  measure, 
than  which,  nothing  could  be  more  fatal  to  the 
industry  of  the  country,  if  it  were  possible.  A 
pestilence  which  should  sweep  off  every  mechanic 
and  artisan  in  the  country,  could  scarcely  be 
more  fatal.  Our  export  trade  would  be  brought 
to  a  halt,  and  our  import  trade  would  be  im- 
mensely increased,  till  the  people  were  rapidly 
exhausted,  as  they  are  now  being  exhausted. 
Yet  such  is  the  fatuity  of  the  popular  mind  upon 
this  subject.  It  seems  a  paradox  to  the  unre- 
flecting mind,  but  it  is  true,  that  the  lower  the 
premium  on  gold,  the  greater  the  depreciation  of 
the  currency,  and  vice  versa.  As  money  increases 
in  quantity  it  declines  in  value,  and  as  it  declines 
in  quantity  it  increases   in  value.     This  is  an 

1  Mr.  Carey  seems  to  be  no  exception  to  the  rule.   Professor 
Bowen,  however,  is  clear  upon  the  subject. 

2  Cleveland,  May  27,  1868. 


a 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.     127 

axiom.1  If,  therefore,  our  currency  (circulation 
and  deposits)  is  $1,400,000,000  nominally, 
then,  with  gold  at  $1.40,  the  quantity  of  this 
currency  is  $1,000,000,000;  with  gold  at 
$2.00,  the  quantity  is  $700,000,000.  Hence, 
as  the  premium  on  gold  advances,  the  currency 
depreciates  in  quantity  and  appreciates  in  value  ; 
and  (reversing  the  language  but  retaining  the 
sense  of  the  axiom  laid  down  by  Smith)  as  the 
exchange  is  always  in  favor  of  that  nation  which 
maintains  an  appreciated  currency,  imports  de- 
crease, and  exports  increase.  Our  public  men 
seem  too  obtuse  to  perceive  this  pregnant  truth. 
The  instrument  of  association  is  constantly  in 
danger  of  being  injuriously  affected  by  the  prod- 
uct of  precious  metals,  and  if  the  instrument  of 
association  is  impaired,  agriculture,  manufactures, 
and  commerce  decline ;  civilization  is  retarded, 
and  internecine  strife  is  sure  to  follow,  with 
stronger  reason,  now  that  there  is  a  heavy  burden 
of  taxation  to  be  borne.  Therefore,  the  surplus 
product 3  of  precious  metals  should  be  exported 

1  Ante,  p.  G3. 

2  The  agio  of  the  currency  is  one  thing,  and  its  deprecia- 
tion quite  another  and  very  different.  The  depreciation  is  in- 
versely as  the  agio.    The  public  mind  is  confused  on  this  point. 

3  It  is  hardly  necessary  to  say  that  by  surplus  product  is 
meant  that  portion  for  which  there  is  no  profitable  use  in  the 
country. 


128  THE   INSTRUMENT   OP   ASSOCIATION: 

as  soon  as  produced,  and  every  economical 
means  should  be  employed  to  facilitate  that  laud- 
able purpose,  taking-  care  that  we  receive  an 
equivalent  in  exchange,  so  as  to  preserve  the 
balance  of  consumption  in  our  favor.  If  our 
bonds  can  be  bought  back,  thus  canceling  our 
interest  bearing  debt  to  foreign  nations,  it  will  be 
a  beneficent  result.  The  tariff  legislation,  there- 
fore, should  be  framed  to  preserve  the  instrument 
of  association  unimpaired,  and  to  provide  rev- 
enue. To  this  end,  all  commodities  of  repro- 
ductive consumption,  such  as  raw  materials,  raw 
produce,  the  constituents  of  paper,  unmanufac- 
tured metals,  chemicals,  and  dye-stuffs,  should  be 
admitted  free.  All  commodities  of  productive 
consumption  should  be  taxed  at  the  maximum 
revenue  rate ;  that  is  to  say,  the  duties  should 
not  be  so  high  as  to  check  consumption  nor 
afford  very  great  inducement  to  smugglers  to 
pursue  their  nefarious  traffic.  The  alimentary 
substances,  such  as  tea,  coffee,  and  sugar,1  chiefly 
come  into  this  category,  and  I  judge  that 
$65,000,000  per  annum  can  be  realized  from 
these  three  commodities.  If  industry  be  well 
employed,  such  a  scale  of  duties  would  not 
operate  to  check  consumption.     All  commodities 

1  Drugs  and  medicines,  so  far  as  they  produce  health,  are 
productively  consumed. 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.    129 

of  unproductive  consumption,  such  as  finished 
textiles,  manufactures  of  all  kinds  in  their,  last 
stage  of  completion,  wines  and  spirits,  tobacco, 
cosmetics,  bijouterie,  and  all  articles  of  luxurious 
consumption,  should  be  subjected  to  such  a  scale 
of  duties  as  would  tend  to  prohibit  and  discour- 
age consumption  thereof.  It  is  no  hardship  to 
lay  a  heavy  impost  upon  luxuries,  and  other 
commodities  unproductively  consumed.  The 
payment  of  such  taxes  is  entirely  within  the 
option  of  the  people ;  if  any  person  pays  such  a 
tax,  it  is  because  he  voluntarily  subjects  himself 
to  it.  The  commodity  is  not  essential  to  his 
comfort  nor  included  among  his  necessities; 
rather  the  reverse.  Such  taxes  do  not  neces- 
sarily fall  upon  the  wages  of  labor,  rent,  or 
profits;  they  differ  from  all  other  taxes,  in  that 
they  fall  upon  and  are  paid  by  the  consum- 
ers without  any  retribution.1  They  are  espe- 
cially just  and  politic,  because  the  consumption 
of  such  commodities  of  foreign  production  is 
hostile  to  the  public  interest.2  With  such  tariff 
legislation,  the  instrument  of  association  would 
remain  perfect,  and  home  industry  be  amply 
protected. 

1  Smith. 

2  "  And  is  in  every  respect  hurtful  to  the  society."  —  Ibid. 

9 


.130  THE    INSTRUMENT    OP   ASSOCIATION  : 

I  have  not  thought  it  proper,  in  this  volume, 
to  discuss  the  terms  upon  which  the  public  debt 
can  be  funded  into  bonds,  terminable  only  by  re- 
demption, at  the  pleasure  of  the  government.  I 
have  merely  to  suggest  that  the  burden  of  taxa- 
tion should  be  made  as  light  as  possible ;  that  the 
people  hereafter  shall  have  no  reason  to  complain 
of  injustice.  So  long  as  the  material  inter- 
ests of  the  people  are  subserved  by  the  mainte- 
nance of  the  Union,  so  long  will  the  Union  en- 
dure. If  the  instrument  of  association  be  perfect, 
and  the  burden  of  taxation  be  not  excessive,  we 
may  reasonably  expect  it  to  endure  for  cen- 
turies. But  if  the  true  principles  of  political 
economy  and  political  philosophy  are  contemned, 
there  are  those  living  who  will  see  it  shattered 
into  fragments.1 

l  "  Abstract  liberty,"  said  Burke,  "  is  not  to  be  found. 
Liberty  inheres  in -some  sensible  objects.  .  .  .  The  great 
contests  for  freedom  in  this  country  (England)  were  from  the 
earliest  times  chiefly  upon  the  question  of  taxing.  .  .  . 
On  this  point  of  taxes,  the  ablest  pens  and  most  eloquent 
tongues  have  been  exercised  ;  the  greatest  spirits  have  acted 
and  suffered.  .  .  .  The  colonies  draw  from  you,  as  with 
their  life-blood,  these  ideas  and  principles.  Their  love  of  lib- 
erty, as  with  you,  fixed  and  attached  on  this  specific  point  of 
taxing.  Liberty  might  be  safe  or  might  be  endangered  in 
twenty  other  particulars  without  their  being  much  pleased  or 
alarmed.  Here  they  felt  its  pulse  ;  and  as  they  found  that 
beat,  they  thought  themselves  sick  or  sound." 


AS  AFFECTED  BY  THE  GOLD  PRODUCT.    131 

"  Taxes,"  as  Adam  Smith  truly  remarks,  "  are  badges  of 
liberty;"  but  it  is  essential  that  they  should  be  levied  for  just, 
laudable,  and  necessary  purposes.  When  levied  for  other  ob- 
jects they  become  badges  of  slavery,  and  whatever  laws  Con- 
gress may  have  passed,  or  shall  hereafter  pass,  "nobody  will 
be  argued  into  slavery." 

"  Est  igitur  respublica  res  populi ;  populus  autem  non  om- 
nis  hominum  coetus,  quoque  modo  congregatus,  sed  coetus  mul- 
titudinis  juris  consensu  et  utilitatis  cominunione  soeuitus."  — 
CiCcfO. 


UNIVERSITY  OF  CALIFORNIA  AT  LOS  ANGELES 

THE  UNIVERSITY  LIBRARY 
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20  m-1, '42(8510) 


UNIVERSITY  OF  CALIFORNIA 
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